Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: The bottom in international DDGS prices seems to be confirmed as prices were again stronger this week. Barge CIF NOLA prices increased $9/MT this week while FOB Gulf prices were $8/MT higher for January shipment. Merchandisers are reporting that, due to the Chinese New Year, the export market has been quieter this week. However, Korean buyers were active and shipments to Busan had a firmer tone. Overall, prices for 40-foot containers to Southeast Asia were mostly unchanged, down $1/ton on average.
This week’s drop-off in soybean meal prices has not exerted much influence on the domestic DDGS market. DDGS are still at a $3.46/protein unit discount to soybean meal and priced at 38% of soybean meal FOB U.S. Gulf. FOB corn values have been on a mild uptick this month but, until recently, DDGS have not followed, heading lower to buy demand in international markets. Now that demand has been found and with the Chinese New Year ending near the beginning of February, prices have a significantly more positive outlook. If weakening ethanol margins continue to work against ethanol production, the resulting supply tightening will be even more positive for DDGS merchandisers.
Across the Atlantic, corn-based DDGS were found to be a more consistent feed ingredient than DDGS based on other products, per a recent EU study. While DDGS in the U.S. are nearly exclusively produced from corn, the raw materials used in Europe are quite diverse, spanning wheat, barley, other cereals, and occasionally beet syrup. Moreover, blends of different raw materials are common. The study sought to determine the variation in nutrient composition of DDGS produced from different materials. The results showed corn-based DDGS were more consistent in their composition and were highly similar to corn-based DDGS from North America.
Ethanol Comments: President Trump’s campaign promises to support American ethanol may be lower on his priority list now that he’s in office. The newly inaugurated President failed to pick cabinet-level staff with a significantly pro-RFS record, leading some in the Midwest to question the President’s intent to keep his campaign promise. Some have pointed to new EPA chief Scott Pruitt’s record of criticizing the RFS. However, it is the Trump administration that is in the White House, not the Pruitt administration. Elected with strong Midwest support, it is unlikely the Trump administration will allow much harm to an ethanol industry so critical to the communities where its votes originated.
Ethanol production continued at a breakneck pace this week, though falling 3,000 barrels/day from the prior week. Still, production totaled 1.051 million barrels/day which is the second-highest production figure in history. Ethanol stocks grew 2.9 percent this week and gasoline supplied fell 10 percent (2.06 million barrels). The increase in stocks pushed ethanol prices lower, in turn pressuring ethanol margins. The deterioration in margins has many in the trade predicting a gradual decrease in production over the next several weeks. Some econometric models have weekly production falling from this week’s 308.9 million gallons to 302 million by the first of February.
Across the four reference markets, ethanol margins fell in three; Illinois, Iowa, and Nebraska. South Dakota margins increased, helped by a 5-cent increase in regional ethanol prices. This week’s average margin of $1.42/bushel is still $0.31 higher than one year prior.
- Illinois differential is $1.27 per bushel, in comparison to $1.34 the prior week and $1.10 a year ago.
- Iowa differential is $1.26 per bushel, in comparison to $1.38 the prior week and $0.98 a year ago.
- Nebraska differential is $1.44 per bushel, in comparison to $1.55 the prior week and $1.17 a year ago.
- South Dakota differential is $1.71 per bushel, in comparison to $1.64 the prior week and $1.19 a year ago.