Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: USDA published their highly anticipated production estimates today, and the data gave no justification for U.S. corn prices to continue trending lower. This fact is a disappointment to bearish traders who were almost entirely dependent upon this report to drive prices lower, as 1) the cash basis had already stabilized due to strong domestic demand, 2) corn exports have been enormous for the past few weeks, and 3) a large number of farmers have decided to place their grain in storage rather than market during harvest.
Foreign DDGS buyers should note the fact that DDGS merchandisers are presently looking at a corn market which has little additional downside left. Perhaps even more important is the fact that at domestic logistic markets where resources are tight and prices have increased, domestic truck and rail companies seem to understand that they currently have the upper-hand. One way that DDGS merchandisers can attempt to regain some leverage is by offering higher volumes of freight movement. Consequently, it may be mutually beneficial for DDGS buyers and merchandisers to discuss the prospects of larger-than-normal purchases in order to lock in present corn prices and more favorable freight rates.
The U.S. truck market is particularly tight, and one merchandiser was told by a freight company that the tight logistical situation may not improve before the year’s end. A different merchandiser reported that buyers are focused primarily upon the price of DDGS, and many are less aware of how tight the logistical situation has become. The availability of loading equipment and containers in the Midwest continues to cause headaches that may impact on-time loading. Of course, customers need shipments to sail on time because the arrival date can influence the final price. Being able to offer large volume movement increases the negotiating ability of the merchandisers.
Ethanol Comments: In today’s WASDE, USDA left the corn use for ethanol and co-products unchanged for the 2013/14 season at 4.9 billion bushels. That estimate makes sense, with the most recent ethanol production levels of 902,000 barrels per day (bpd). That was a slight reduction from the prior-week level of 911,000 bpd, but above the year-ago domestic production level of 827,000 bpd. However, it is important not to forget to tack on an additional 60,000 bpd of ethanol imports to that year-ago figure. Furthermore, greater usage seems evident in total U.S. ethanol stocks data from the Energy Information Administration (EIA). Present ethanol stocks of 15.2 million barrels are 16.4 percent below last year’s levels.
The recent favorable margins of ethanol producers and the prolonged period of total U.S. ethanol stocks remaining below last year’s levels has been sufficient incentive to restart several ethanol plants, which are coming back online as declines are occurring to ethanol producer margins.
Recent reductions in ethanol producer margins are primarily attributable to weakness in ethanol prices rather than returns from DDGS. Returns for ethanol facilities in Illinois, Iowa and Nebraska declined as ethanol dropped from 17 to 23 cents per gallon. However, there was actually a slight increase in the value of DDGS at plants in Illinois and Iowa. Ethanol producer returns remained unchanged in South Dakota as prices were stationary for both ethanol and DDGS. USDA’s reported difference between corn and the co-products values are as follows for the week ending November 8:
– Illinois differential decreased to $2.64 per bushel, which is down from $3.16 the prior week but above $1.49 for this same week a year ago.
– Iowa differential decreased to $2.28 per bushel, which is down from $2.68 the prior week but above $1.24 for this same week a year ago.
– Nebraska differential decreased to $1.88 per bushel, which is down from $2.55 the prior week but above $1.54 for this same week a year ago.
– South Dakota differential remained unchanged at $2.88 per bushel, which is above $1.40 for this same week a year ago.