Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: Some DDGS prices were higher this week in the Midwest, helped along by strong truck demand. The cold snap across much of the nation’s middle helped boost feed demand for DDGS while the rally in soybean meal put some urgency into buyers. On a per-protein unit basis, DDGS are now fully $1.00 cheaper relative to soybean meal than they were two weeks ago. Domestic DDGS prices were higher this week with FOB Gulf prices gaining $4/ton and prices to the PNW and California up $3/ton.
The DDGS outlook is looking brighter with improved demand prospects and supply reductions likely ahead. While the latest export data shows November exports were down from the prior year, lower CNF Gulf and container yard prices suggest ample opportunities to entice new export demand. Moreover, tightening ethanol margins will start to restrict production; commensurately reducing DDGS supply.
Some merchandisers are reporting that international prices seem to have bottomed out. With DDGS near 60 percent of corn value buyers are emerging and covering February-April positions. Sales to Southeast Asia have been noted along with some to China. Now that China’s final ruling on tariffs for U.S. DDGS are known, traders will begin the process of adapting to new trade terms and pricing. Some buying interest is noted heading into China but firm bids have yet to be established. Sale prices for DDGS to Southeast Asia were mixed this week with strength in Vietnamese and Philippines bids and weakness in Malaysia, South Korea, and Taiwan.
Ethanol Comments: Ethanol producers seem determined to break production records and they did so again this week, producing 309.88 million gallons. This marks the third straight week of record-breaking production as ethanol plants increased their output by 5,000 barrels/day (0.5 percent) which boosted ethanol stocks by 1.106 million barrels (up 5.5 percent). At the same time, gasoline consumption increased by 2.1 million barrels this week (up 11 percent) which helped keep stocks from growing even faster.
The record-breaking ethanol production was driven by a spike in ethanol prices and extremely good production margins. U.S. ethanol exports have been excellent, boosting prices. Data from the USDA suggests ethanol margins during the first weeks of December were the highest since May, 2015. Now, however, Iowa ethanol prices have fallen $0.40 from their recent highs and margins are beginning to turn negative by some measures. This will likely restrict production growth and weekly output should fall next week.
Continued record production forced margins lower again this week. Ethanol margins fell in all four of the reference markets; declining $0.20 per bushel in Illinois and Nebraska while Iowa and South Dakota saw decreases of $0.15-0.18 per bushel. This week’s average margin of $1.48/bushel is still $0.33 higher than one year prior.
- Illinois differential is $1.34 per bushel, in comparison to $1.62 the prior week and $1.13 a year ago.
- Iowa differential is $1.38 per bushel, in comparison to $1.56 the prior week and $1.02 a year ago.
- Nebraska differential is $1.55 per bushel, in comparison to $1.79 the prior week and $1.26 a year ago.
- South Dakota differential is $1.64 per bushel, in comparison to $1.79 the prior week and $1.20 a year ago.
Adding to the bearish leaning for ethanol is a change in China’s ethanol import tariff. The move has reportedly caused some buyers to washout several Q1 cargoes already. The U.S. has been China’s largest supplier lately and 2016 exports (through November) were up 51 percent year-over-year.