Distillers Dried Grains with Solubles (DDGS)
DDGS Comments:There is some competitive pricing among merchandisers for the containerized DDGS movement into Shanghai, but overall this week there was a consistent $10 per MT increase in spot prices for containerized DDGS. Domestic spot deliveries of DDGS by rail experienced greater price increases due to logistical constraints, which are largely related to harsh winter weather causing backlogs. Backlogs have the potential to ripple into future pricing, and are part of the reason for even greater increases in the cost of domestic DDGS delivered by rail one to two months out. Indeed, domestic rail delivered DDGS prices for April and May both increased by more than $20 per MT this week. This may have created somewhat of a pricing opportunity for foreign buyers of containerized DDGS which were $10 higher in the spot market, followed by a $5 increase for April and no increase for May.
Buyers of DDGS should note that a number of the ethanol plants have reduced their run time to about 65 percent of capacity. This rate is as slow as they can go without fouling things up with their fermentation process or freezing due to the cold. Such reduced production is necessary because the slowing availability of rail cars and trucks is causing plants to get plugged up with ethanol. As well, the severe winter weather is causing natural gas prices to temporarily explode higher in some regions of the country. For example, one merchandiser reported that the price of natural gas that could be purchased at the beginning of the month at $4-5 per dekatherm traded today at $70 per dekatherm. Such extreme pricing is a temporary condition, but it can easily influence future DDGS prices.
Another factor to consider is the declining prices of containerized DDGS into April and May (please see table). That pricing structure is exactly the opposite of the how corn futures are currently priced. Therefore, the assumption is that DDGS merchandisers are seeking to incentivize buyers of containerized DDGS to extend purchases into the future by offering a favorable pricing structure
Ethanol Comments: The winter weather that has already caused some logistical delays may continue to influence ethanol deliveries for another week, but recent increased ethanol prices do not seem fully attributable to just transportation difficulties. Strong demand also appears to be an underlying factor. That notion is supported in part from the fact that total U.S. ethanol stocks for the week ending February 21 were 17 million barrels, down from the prior week’s total stocks level of 17.2 million barrels. Some ethanol inventory could be waiting in railcars for transportation out of the Midwest to coastal regions, but a weekly decline in stocks of 200,000 barrels is hard to attribute to delayed logistics when production is increasing.