Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: The Chinese New Year begins today. Tradition has it that the year of the Wood Horse is about reaching onwards and upwards and planning ahead, and that seems to be exactly what many Asian DDGS buyers are doing. One DDGS merchandiser reported that various Chinese buyers are quietly making inquiries about possible DDGS pricing shipments in the April-forward time period. In the meantime, Japanese buyers are already in the market and making purchases. Merchandisers report that DDGS sales occurred this week for March shipment to various Japanese destinations such as Tokyo, Kobe and Nagoya.
Domestically, ethanol railcars are currently in tight supply and that is forcing some U.S. ethanol plants to slow down their production, which will have some short-term impact on DDGS production. That development is presently not creating much of a problem. However, various market participants seem concerned that competition is likely to increase going into April.
The preceding outlook section discusses the intensifying global interest in U.S. feed grains. Such interest is expected to influence the DDGS market, as DDGS is increasingly utilized as a protein source. DDGS merchandisers note that domestic demand is presently steady, but domestic buyers are watching market conditions related to China and biotech issues. Meanwhile, some of the Japanese buyers have decided that is it wiser to take action in the existing slower market.
Ethanol Comments: USDA is forecasting that corn used in the production of ethanol and by-products will increase from 4.648 billion bushels in 2012/13 to 5 billion bushels in the current 2013/14 crop year (which runs from September/August). That is approximately an 8 percent year-over-year increase. USDA’s predictive ability seems to be accurate when looking at current ethanol production figures that show there is about a 10 percent increase during the September to January period. Relatively strong consumptive demand for this increased production is indicated by the present U.S. ethanol stocks of 16.9 million barrels, a figure 17.6 percent below last year’s level of 20.5 million barrels.
Please note that the weekly average ethanol production rate of 900,000 barrels per day (bpd) is 16.9 percent above the level from the same week a year ago of 770,000 bpd, but that is not overly concerning when considering the two year ago production rate. In the 2011/12 season there was an identical 5 billion bushels of corn used by the ethanol industry and total ethanol production during the same week two years ago was 4.1 percent larger (939,000 bpd) than the same week this year. In summary, the current weekly ethanol production levels make sense, total ethanol stocks are not burdensome and ethanol producer margins are implied to be favorable when comparing the corn prices with the value of processing products for facilities in the following locations across the Corn Belt:
– Illinois differential is $3.49 per bushel, in comparison to $3.61 the prior week and $1.66 a year ago.
– Iowa differential is $2.60 per bushel, in comparison to $2.64 the prior week and $1.46 a year ago.
– Nebraska differential is $2.48 per bushel, in comparison to $2.73 the prior week and $1.83 a year ago.
– South Dakota differential is $2.72 per bushel, in comparison to $2.92 the prior week and $1.73 a year ago.