Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: Declines this week in corn futures contracts at the Chicago Board of Trade (CBOT) has resulted in excellent pricing opportunities for DDGS end-users. Domestic prices for DDGS declined by $8-$9/MT and containerized prices to the export market declined from$8-$10/MT. As well, there is a substantial $7 decline from June to August in the domestic rail-delivered rates to the West Coast.
Buyers were dropping bids quickly and one DDGS merchandiser had to reduce his rate by $8/MT in order to confirm sales. This strategy of stepping away from the market can work for DDGS buyers as long as corn futures contracts are in decline. Futures traders at the CBOT seemed to hit a point at the end of this week where they simultaneously said “enough” to any lower prices and the corn contracts suddenly rebounded. Those traders recognize that there is more than a month before pollination starts to occur in most locations across the Corn Belt, and summer weather can change quickly in that length of time.
The recent slowdown in buying has caused a backlog in DDGS inventory at multiple ethanol facilities. Buyers are expected to return in force once it becomes evident that a near-term bottom has been established in the corn futures contracts. Of course, DDGS merchandisers may then have their turn to be more selective as buyers simultaneously return. Container rates are also likely to react to any increased interest. In the meantime, DDGS buyers are presently being offered some of the best rates in the past few years.
Ethanol Comments: This week there was some discussion among grain market participants that increasing ethanol stocks was justification for this week’s declines in the price of corn futures contracts. While ethanol producers certainly appreciated seeing the lower corn contract prices, the reasoning that larger ethanol stocks was any justification for lower corn prices seems flawed.
The following data shows the spot market differentials between the price of corn and co-products that U.S. ethanol producers receive in different regions of the Corn Belt. In Illinois the differential is still 58 percent above a year ago, it’s 62 percent above a year ago in Iowa, 46 percent above a year ago in Nebraska and 71 percent above a year ago in the South Dakota region. (The weaker corn basis in South Dakota is presumably one reason for that region’s stronger differential.) Ethanol producer margins remain well in the black.
Lower corn prices may encourage active utilization of ethanol facilitates, but any builid-up in ethanol stocks, and a resulting decline in ethanol prices, should incentivize greater exports of U.S. corn-based ethanol.
- Illinois differential is $3.64 per bushel, in comparison to $4.12 the prior week and $2.31 a year ago.
- Iowa differential is $3.49 per bushel, in comparison to $4.02 the prior week and $2.15 a year ago.
- Nebraska differential is $3.38 per bushel, in comparison to $3.70 the prior week and $2.32 a year ago.
- South Dakota differential is $3.91 per bushel, in comparison to $4.22 the prior week and $2.28 a year ago.