Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: Both domestic and foreign DDGS buying have slowed down, as all market participants appear to be anxiously awaiting next Friday’s Acreage and Grain Stocks reports from USDA. If there is a near-term bullish reaction to report contents, then the most general expectation seems to be that ethanol plants could temporarily reduce their operating rates in order to stretch out corn supplies before the new crop arrives.
One merchandiser reported that Chinese buyers did secure a couple thousand metric tons for August shipment, but noted that they are cautious about booking further into the future. Domestic buyers reportedly are purchasing week by week, and the container market seems to be setting the market pace. A common consensus is that there will be no new buying frenzy for the next few months. The container demand for DDGS continues to be supported by issues with delayed shipments of soybeans and soymeal out of South America and by U.S. corn currently being so difficult to source. But these conditions will not last forever. The two major reports will be out of the way in one more week, and U.S growing conditions currently are favorable.
Ethanol Comments: Next Friday’s Grain Stocks report is probably more important for ethanol producers than the Acreage report. Market participants already are expecting a reduction in corn acreage, but far less attention has been paid to the quarterly stocks report. However, a number of ethanol plants seem to have taken prudent preemptive action by obtaining sufficient coverage to withstand a short-term reaction to any bullish surprise. A positive note is that the duration of any rally could be limited if there is no change in the currently favorable growing conditions.
Ethanol stocks for the week ending June 14 increased from 16 million barrels to 16.5 million barrels and remained well below year-ago levels of 21.2 million barrels. Weekly average production declined from 884,000 barrels per day (bpd) to 873,000 bpd as producer margins narrowed. The differential between corn and co-product processing values declined in all regions:
– Illinois differential decreased to $2.21 per bushel, which is down from $2.31 the prior week but above $1.20 last year.
– Iowa differential decreased to $1.90 per bushel, which is down from $2.06 the prior week but above $1.42 last year.
– Nebraska differential decreased to $1.95 per bushel, which is down from $2.26 the prior week but above $1.25 last year.
– South Dakota differential decreased to $2.04 per bushel, which is down from $2.07 the prior week but above $1.20 last year.
Ethanol producer margins could be squeezed further in the near term because of the current high corn prices and the return of ethanol imports. Ethanol imports returned at a rate of 65,000 bpd for the week ending June 14.