Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: As noted in today’s ethanol section, constrained production by ethanol facilities while profit margins have substantially increased is a good indicator that a number of plants are finding it difficult to secure sufficient amounts of corn – no matter what the price. There is light at the end of the tunnel, but that end could still be a month away in some locations.

In the meantime DDGS buyers need to take care of their immediate needs, and it has been a busy week for one merchandiser who reported selling over 12,000 MT of DDGS to customers from China, Vietnam, Malaysia and Indonesia. These international buyers are primarily interested in securing product for the October-December period; prices were Qingdao for October-December package at $320/MT and Xiamen for October and November package at $325/MT. However, one difficulty is the escalating container rates for this time period. Trans-loaders in such diverse locations as Savannah, Chicago and Kansas City are all getting booked, and it is hard to secure container loading space.

Logistical considerations in the domestic market seem to be better, and there is reported to be a lot of car availability. The purchasing pattern of domestic buyers is to limit buying to the spot market because they recognize that the convergence between old and new crop prices is going to be volatile. Domestic sales were reported with 5,000 tons for September at $255, for Chicago trucks, and another 2,000 tons in the November-December period at $215. Otherwise, the price reporting was extremely light this week because many merchandisers have already taken off for the holiday. The result is that there is a reduced DDGS pricing table this week: Hopefully everyone has a great holiday!

Ethanol Comments: Last week’s ethanol production declined to 820,000 barrels per day (bpd); down from the prior week’s level of 844 bpd. There was also a decline in ethanol stocks from 16.5 to 16.3 million barrels. Tight corn supplies are one reason for this constrained production. It is even becoming increasingly evident that USDA may need to lower their estimate for the amount of corn used for ethanol production in the 2012/13 season that ends on Saturday August 31. USDA’s estimate is that 4.65 billion bushels of corn will be used in ethanol production, but it appears that estimate could be about 30 million bushels too high.

Ethanol imports fell from 19,000 bpd to only 4,000 bpd during the prior-week. That is excellent news considering that a story by Reuters reported that Brazilian cane mills had increased their ethanol output in August as weather became dryer and more favorable for crushing. Crushers in Brazil’s main sugar-cane region have increased their year-over-year production by 15 percent in the first half of August. Fortunately, it seems that ethanol production has remained primarily within their local markets.

U.S. ethanol stocks may show a slight decline again next week due to increased gasoline consumption over the holiday weekend. The increased demand has contributed to a substantial jump in the profit margins of ethanol producers, as implied by the following increases in the differentials between corn and the value of co-products values:

– Illinois differential increased to $3.12 per bushel, which stands in comparison to $2.36 the prior week and $1.81 for this same week a year ago.
– Iowa differential increased to $2.97 per bushel, which stands in comparison to $2.20 the prior week and $1.48 for this same week a year ago.
– Nebraska differential increased to $2.71 per bushel, which stands in comparison to $1.98 the prior week and $1.76 for this same week a year ago.
– South Dakota differential increased to $3.19 per bushel, which stands in comparison to $2.64 the prior week and $1.89 for this same week a year ago