Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: This season’s severe winter weather continues to cause problems within the DDGS market. Merchandisers report that winter storms have disrupted railroad logistics for both hopper cars and ethanol cars. The disruption has even forced some ethanol plants to temporarily stop production and delay delivery by rail. Of course, this situation is influencing prices, and domestic markets have firms by $5-10 per MT in most locations for truck rates, while local prices at some facilities prices have advanced up to $25 per MT in the spot market. The result is that February DDGS prices are presently trading higher than in the March forward time period.
Domestic buyers of DDGS are struggling to meet their needs what with the winter weather, just as foreign buyers are showing increased interest in purchasing again. Vietnamese buyers were particularly active in making pricing inquiries this past week. However, Vietnamese buyers hoped to obtain pre-Chinese New Year holiday price levels, which is no longer the case. Some of these buyers were surprised by export price levels that were $35-40 per MT higher that previously reported, as delays from winter weather have rippled through the entire logistical system.
Unforeseen factors, such as the recent winter storms, are a nuisance for everyone. Many market participants are increasingly monitoring factors such as uncertainty in the Argentine soy complex and the prospect of returning Chinese demand for DDGS, both of which could impact future DDGS prices. The most successful DDGS buyers in the present dynamic conditions seem to be those who maintain active dialogs with the merchandisers and work to create extended pricing strategies.
Ethanol Comments: This week the differential between corn and co-product processing values improved across the Corn Belt. The differentials are not profit margins but they can be used as somewhat of an indicator of the relative financial health of the industry. The differentials for the week ending February 14, 2014 are as follows:
– Illinois differential is $4.40 per bushel, in comparison to $3.43 the prior week and $1.81 a year ago.
– Iowa differential is $2.74 per bushel, in comparison to $2.60 the prior week and $1.62 a year ago.
– Nebraska differential is $2.66 per bushel, in comparison to $2.60 the prior week and $1.93 a year ago.
– South Dakota differential is $2.89 per bushel, in comparison to $2.75 the prior week and $1.92 a year ago.
Significant improvements have happened in a relatively short amount of time: Recall how difficult a year 2012 was for ethanol producers, as drought drove corn prices to $8.00 per bushel and the industry suffered through a period of consistent losses – and not all producers survived. Margins did not become black again until early 2013, but by the end of the year the financial health of many producers had recovered. Halfway through the first quarter of 2014, it appears that margins will remain solid due to relatively low corn prices, increased demand for fuel and strong ethanol exports.
Export demand for U.S. ethanol has grown through 2013 and has been a major factor in keeping total stocks below year-ago levels. Foreign demand is growing and China has recently purchased U.S. corn-based ethanol. Of course, demand will vary from week to week and stocks will ebb and flow.
For the week ending 7 Feb 2014, total U.S. ethanol stocks increased to 17.1 million barrels, in comparison to the prior week’s level of 16.7 million barrels and the year-ago stocks level of 19.5 million barrels. Favorable margins also encouraged weekly production to increase slightly to 902,000 barrels per day (bpd), which was above the prior week’s production level of 895,000 bpd.