Archer Daniels Midland Company (NYSE:ADM) is on watch today, after the Chinese government announced a massive increase in tariffs imposed upon U.S. imports of a lucrative animal feed ingredient.
The ingredient in question is known as distillers’ dried grains (commonly abbreviated as DDGS). DDGS is a by-product of corn ethanol that feed mills use as a substitute for corn and soymeal when they aren’t available, or are too expensive. China imports nearly all of its DDGS from the United States, which leads all countries as the world’s largest exporter of DDGS.
China’s Commerce Ministry announced that “anti-dumping duties will range from 42.2 percent to 53.7 percent, up from 33.8 percent in its preliminary decision in September. Anti-subsidy tariffs will range from 11.2 percent to 12 percent, up from 10 percent to 10.7 percent,” according to Reuters. That tariff increase was significantly larger than analysts and producers expected.
Ethanol producers like ADM will be hit hard by the new tariff, which is bound to cause major pricing pressures and erode margins. Some believe it may be the first shot fired in an erupting trade war between the U.S. in China, spurred by president-elect Donald Trump’s plans to force U.S. companies to do more of their business domestically.
Archer Daniels Midland Company shares fell $2.50 (-5.62%) in premarket trading Wednesday. Year-to-date, ADM has declined -8.08%, versus a 1.20% rise in the benchmark S&P 500 index during the same period.