Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: Stronger corn prices in the week following the USDA report have led the DDGS market higher. Prices for product to the U.S. Gulf and NOLA increased by an average of $9/ton for delivery in the coming three months. Demand for other U.S. agricultural products at the Gulf has slowed this week, leading to more competitive offers in hopes of attracting more business. Shipments to Southeast Asia were priced higher this week as well with prices for 40-foot containers to Japan increasing by $6/ton for September delivery and $3/ton for October and November delivery. Containers destined for Vietnam, Malaysia, and China were priced steady to slightly higher.
The increase in DDGS prices is somewhat surprising given the tied-for-record large ethanol production noted at the end of last week. This may be indicative of improving end user demand or buyers simply returning to the market after sitting last week out waiting for the WASDE. In either case, tepid ethanol margins across the U.S. may slow production and leave DDGS supplies modestly tighter. DDGS still have a price advantage over soybean meal on a per unit of protein basis, making them more attractive to include in feed rations.
Ethanol Comments: The July WASDE report lowered expectations for corn use in ethanol for the 2015/16 crop year by 25 million bushels. The most recent report estimated 5.2 billion bushels will be used for ethanol and corn formerly pegged for the ethanol grind was added to exports. Estimates for the 2016/17 crop year were left unchanged at 5.275 billion bushels.
Ethanol production tied mid-July’s record-high this week, reaching 1.029 million barrels and climbing over 11,000 barrels over the previous week’s strong production. The strong production pace so far in 2016 prompted the EIA to increase forecasts for total ethanol production this year, with production expected to average 980,000 barrels per day or 15.1 billion gallons. Despite the record production, ethanol stocks fell for the third consecutive week as strong export sales outpaced production. U.S. gasoline consumption held steady this week at 9.726 million barrels per day, an increase of 0.6 percent from the same time last year.
The margin between the corn price and the value of ethanol and coproducts was stronger this past week in all of the four reference markets (see below), and the spread versus this time last year narrowed for all markets except Illinois, which rose $0.20 year-over-year this week.
- Illinois differential is $1.89 per bushel, in comparison to $1.72 the prior week and $1.69 a year ago.
- Iowa differential is $1.72 per bushel, in comparison to $1.64 the prior week and $1.74 a year ago.
- Nebraska differential is $1.45 per bushel, in comparison to $1.37 the prior week and $1.41 a year ago.
- South Dakota differential is $1.80 per bushel, in comparison to $1.70 the prior week and $1.86 a year ago.