Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: DDGS merchandisers and buyers both anxiously waited to see to the contents of USDA’s May WASDE that contained the initial projections for the 2014/15 crop season. There seemed to be a common sigh of relief as the data was considered somewhat bearish in relation to market expectations. DDGS prices could have more downside in the near-term, particularly if the planting pace can rebound in the next two weeks.
Containerized DDGS prices experienced modest declines this past week. The price of containerized DDGS to Asian markets declined on average by about $5.00/MT, with the largest declines being to Indonesia and South Korea. The week to week decline in domestic DDGS prices was not as pronounced, but domestic DDGS prices do offer an attractive reduction from May into June and July; the decline on domestic prices from May into July is about $10.00/MT.
Merchandisers are reporting that a lot of the foreign DDGS buyers are looking beyond June and are actively pricing in the July/August/September time period. Several DDGS merchandisers report that they were receiving inquiries from Chinese buyers who were anxious about the possible contents of the May WASDE. Those Chinese buyers may now decide to be more patient and wait on additional declines in price. However, most market participants are aware that global corn prices are likely to be volatile until mid-summer pollination is competed. That uncertainty is a primary reason that one foreign buyer purchased 7,000 MT for the July/August/September period at an average price of $338/MT and another purchased 2,000 MT for June/July at an average price of $345/MT. Some foreign buyers are even inquiring about the October/November/December period. It may be wise to have a target price in mind if there is a setback in prices during the next couple of weeks.
Ethanol Comments: USDA released their first estimate of ethanol production for the 2014/15 crop year and it is the same as the 2013/14 season: 5,050 million bushels. This estimate is as good as USDA can do without receiving more insights about 2014/15 ethanol production mandates from the Environmental Protection Agency (EPA). However, EPA is not being rushed in their decision making process about the 2014/15 season because they have received a supportive ruling from the Court of Appeal for the District of Columbia Circuit which concludes that EPA has wide latitude in its decision making process.
There was a small week-to-week decline in total U.S. ethanol stocks from 17.2 down to 17.1 million barrels for the week ending May 2, 2014. Total stocks are slightly above the year-ago level of 16.8 million barrels. The current stable stocks level was helped by the fact that ethanol imports remain zero and there was a slight reduction in the weekly ethanol production levels, down from a prior week average daily rate of 898,000 barrels per day (bpd) to 894,000 bpd. Near-term production seems likely to remain at similar levels, but will likely decline further if profit margins for ethanol facilities continue to work lower. The following are the differentials between corn and co-products across the Corn Belt for the week ending May 9:
– Illinois differential is $3.19 per bushel, in comparison to $3.67 the prior week and $2.49 a year ago.
– Iowa differential is $3.01 per bushel, in comparison to $3.28 the prior week and $2.02 a year ago.
– Nebraska differential is $2.83 per bushel, in comparison to $3.07 the prior week and $2.57 a year ago.
– South Dakota differential is $3.47 per bushel, in comparison to $3.69 the prior week and $2.43 a year ago.