Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: The DDGS market has been subject to odd and unpredicted trends this week. The resolution of political uncertainty around certain DDGS tariffs is actually bringing additional buyers to the market. In general, markets prefer certainty over uncertainty and this appears to be the case in the international DDGS trade. Some merchandisers are reporting unexpected Asian buying interest this week, with Korea joining the cadre of buyers as well.
So far this week, prices have a weaker tone but that is likely to turn around given the emerging buying interest. In the domestic market, DDGS have become significantly more cost efficient on a per-protein unit basis against soybean meal, gaining $0.30 cost efficiency this week. FOB Gulf prices are lower as DDGS seek to remain competitive with other products leaving the Gulf amid a mild slowdown in most grain exports. Interestingly, the forward curve for DDGS shipments is positively sloped for FOB and CNF Gulf prices, indicating the possibility of stronger demand ahead. From January to March, there is a $9/ton increase in FOB Gulf prices and a $5/ton increase for rail-delivered PNW DDGS. Asian markets are bidding approximately the same price for January and February shipment with a slight February/March increase.
Ethanol Comments: A second consecutive ethanol production record occurred last week as producers turned 110.1 million bushels of corn into 308.42 million gallons of ethanol. The 0.6 percent production increase came even as stocks increased by 7.1 percent and gasoline consumption increased by 4 percent. The weekly record was more than sufficient to keep corn used in ethanol above what was needed to meet USDA’s December projections.
The January WASDE brought with it a 25 million bushel increase in USDA’s projections for corn used in the ethanol grind. The increase bumped expectations to 5.325 billion bushels for the 2016/17 crop year, a 2 percent increase over the prior marketing year. The annual corn use projection translates to a weekly corn grind rate of 102.4 million bushels, and the grind rate has not been that low since October 7, 2016. Accordingly, additional upward revisions in USDA’s projections are likely. Later iterations of the WASDE report could easily incorporate a 5.5-billion-bushel grind and possibly a 5.75-billion-bushel grind estimate.
Two weeks of record production caught up with the market this week and margins were sharply lower across the Midwest. Ethanol margins fell over $0.40 per bushel in Illinois, Iowa, and South Dakota while Nebraska saw decreases of $0.34 per bushel. Even so, margins start 2017 with a year-over-year increase of $0.44 per bushel. The average margin of $1.69/bushel observed this week will continue to stimulate high production volumes, though a retreat from the past two weeks’ record setting trend is expected.
- Illinois differential is $1.62 per bushel, in comparison to $2.08 the prior week and $1.21 a year ago.
- Iowa differential is $1.56 per bushel, in comparison to $2.02 the prior week and $1.12 a year ago.
- Nebraska differential is $1.79 per bushel, in comparison to $2.13 the prior week and $1.36 a year ago.
- South Dakota differential is $1.79 per bushel, in comparison to $2.22 the prior week and $1.33 a year ago.