Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: Domestic DDGS buyers continue to purchase hand-to-mouth as they wait for the spread between old and new crop prices to narrow. Domestic DDGS prices ranged from $5.00 higher to $5.00 lower. There is price discovery taking place as the corn basis narrows between old and new crop, but the market presently seems firm going into the October-November-December (OND) period.
One reason for the stability of price is because DDGS seems to be increasingly looked at as not just a replacement for corn, but also as a protein source. Consequently, the uncertainty about the U.S. soybean crop and high soymeal prices may support the DDGS market into November. (Domestic meal supplies may be limited until November.) Buyers seem to be aware of these price supporting dynamics and they are making active inquires about DDGS prices into the December period.
The limited availability of Indian soybean meal and high local prices are keeping Asian buyers of DDGS active. Japanese, Korean and Chinese buyers all made purchases this past week – with Chinese buyers being the most active. Many Chinese customers are seeking a OND package. It is noted that several reliable sources from China mentioned price ranges from $308 to $322/MT for Qingdao/Shanghai for OND. Of course, no prices are concrete because, as noted in the Outlook section, a number of USDA reports will be published this month and they are likely to influence U.S. corn prices through the OND period.
Ethanol Comments: Profit margins continue to improve for ethanol facilities due to recent declines in both corn futures and cash basis. As implied in the Outlook section of this report, the opportunity to take advantage of current price levels may not be indefinite despite the approach of a potentially large harvest.
Ethanol futures contracts have found it difficult to mimic the behavior of recent increases in crude oil prices. Historically, crude oil prices have normally peaked in early October, but in more recent years the peak has occurred around August. One reason for the comparative weakness of ethanol is the usage of RIN credits and another is the prospect of imported ethanol.
Ethanol imports did increase this past week to a daily average of 37,000 barrels per day (bpd), which is above the prior week’s average of 4,000 bpd. Overall, the amount of ethanol imports have not been too threatening and that may stem in part due to the weakness of the Brazilian real, which according to a Reuters story, has encouraged end-users to extend coverage on their sugar purchases. However, the fact that Brazil is in the process of harvesting a record cane crop and that the real has declined over 15 percent against the U.S. dollar does indicate that sugar-based ethanol imports do need to be consistently monitored. So long as imports do not grow, domestic ethanol stocks and production remain at manageable levels.
U.S. ethanol stocks are basically unchanged at 16.2 million barrels. Stocks were 16.3 million barrels the prior week while the year-ago level was 13.4 percent larger at 18.7 million barrels. Throughout this calendar year, the ethanol industry has done an excellent job of keeping average stock levels below those seen a year ago. Even though margins increased this past week, production declined slightly to 819,000 bpd, which is down from 820,000 bpd the prior week and 829,000 bpd during the same week a year ago. Those production figures may increase in the future as plants that are currently down for maintenance return and more corn becomes available. The differentials between corn and the value of co-products values indicate the present favorable margins:
– Illinois differential increased to $3.31 per bushel, which is in comparison to $3.12 the prior week and $1.89 for this same week a year ago.
– Iowa differential increased to $3.33 per bushel, which is in comparison to $2.97 the prior week and $1.57 for this same week a year ago.
– Nebraska differential increased to $3.30 per bushel, which is in comparison to $2.71 the prior week and $1.77 for this same week a year ago.
– South Dakota differential increased to $3.44 per bushel, which is in comparison to $3.19 the prior week and $1.73 for this same week a year ago.