Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: Trading this week was light due to the coming holidays but developments that will be long-term positive for DDGS were noted. Few trades were executed this week as sellers are defending prices but buyers, having reached almost maximum inclusion rates of DDGS in feed rations, are content to post low bids. With short-term needs met and little ability to increase usage, buyers are bidding $10 below offers in a “wait and see what happens” strategy. Accordingly, the majority of traded prices were lower this week and Gulf prices fell $6/ton on average. Demand in the PNW appears strong as spot prices were stable and February/March shipments gained $2-3/ton. Additionally, Lethbridge, Alberta prices were higher.
Despite a low volume week, positive market developments were noted. In China, the ever widening spread between the U.S. dollar and the Chinese yuan has prompted Chinese importers to lock down soybean prices and book freight. The dollar/yuan dynamics are reflective of other currencies and should be prompting importers to start buying DDGS before the dollar moves higher. Given the U.S. stock market’s recent rally, the Fed’s rate hike, and solid GDP numbers, the U.S. dollar will likely continue its upward trajectory. International buyers would be wise to book shipments and fill needs sooner rather than later. Additionally, current FOB export prices should be attractive to international buyers and buying interest is expected to increase substantially in Q1 2017.
The export market has a significant carry right now as exporters are anticipating freight rate increases. Spot prices for international shipment unconvincingly drifted lower this week on a lack of inquiries with containers to Southeast Asia falling $3/ton on average.
Ethanol Comments: Ethanol plants are taking advantage of prime money making opportunities by continuing to run at a breakneck pace. Ethanol production slipped only slightly this week (down 0.4 percent) to 1.036 million barrels/day, still the second highest production week on record. Demand for product remains strong, however, and ethanol stocks across the U.S. fell just 0.1 percent to 19,06 million barrels as gasoline supplied (a measure of consumer demand) increased 13 percent from the prior week. The holiday season will boost American’s driving and should see gasoline/ethanol demand remain strong in the coming two weeks. Production will likely slip in the coming weeks as plants close for a few days but will soon revert to current production levels. The outlook for ethanol remains strong in the near term and prices should remain elevated and continue to provide producers with excellent margins. Due to strong production and huge margins, look for the USDA to increase its forecast of corn going to the ethanol grind in the January WASDE.
Ethanol margins bounced higher again this week across all four reference markets. Nebraska ethanol producers saw the largest boost in margins, gaining $0.38/bushel this week. Ethanol producers are enjoying an extended period of excellent margins which are up $1.32/bushel over last year, on average. Good margins are encouraging production and farmer selling.
- Illinois differential is $2.67 per bushel, in comparison to $2.30 the prior week and $1.48 a year ago.
- Iowa differential is $2.59 per bushel, in comparison to $2.27 the prior week and $1.21 a year ago.
- Nebraska differential is $2.62 per bushel, in comparison to $2.24 the prior week and $1.42 a year ago.
- South Dakota differential is $2.88 per bushel, in comparison to $2.60 the prior week and $1.38 a year ago.