Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: Demand for U.S. DDGS increased in July as U.S. exports rose 8.7 percent over June. U.S. exporters shipped 1.094 MMT of DDGS in July, an increase of over 88,000 from the prior month, while the average price per MT of DDGS rose from $189 in June to $208.40 in July. China was the top DDGS importer in July, purchasing 358,000 MT, followed by Mexico’s purchases of 147,000 MT and 116,000 MT shipped to Vietnam. July’s export volume is the highest since September 2015 and is the third month since October 2015 that U.S. exports exceeded 1 million MT. Demand for U.S. DDGS in Southeast Asia remains exceptionally strong this year.
DDGS prices for international destinations rallied strongly this week. Prices for 40-foot containers to Japan increased $11/ton while prices for other Asian destinations increased $5/ton on average for September shipment. Prices for shipment to Asian destinations in October and November strengthened by an average of $3/ton and $5/ton, respectively. The strength of deferred markets may be indicative of rising demand internationally. Traders indicate Vietnamese buyers are providing steady demand and, indeed, prices for September shipment to Vietnam are the second highest this week.
On the domestic side, DDGS are finding ways to remain competitive in feed rations. Prices for delivery to Laredo, Texas increased $8/ton this week for September delivery and similar price strength was observed for October and November delivery. This week’s decline in ethanol production should help reduce DDGS supplies and add support to the market. Moreover, the Hanjin Shipping crisis is adding strength to the market, with some traders reportedly increasing offers $15-$20/MT for international destinations. The move is predicated by the revised GRI rates that now stand $12/MT higher than those announced before the Hanjin bankruptcy.
Ethanol Comments: U.S. ethanol exports experienced impressive month-over-month growth in July, rising 49.4 percent. According to the U.S. Census Bureau, exporters shipped 69.3 million gallons overseas in July, an increase of 22.91 million gallons over June’s exports. July’s export growth came without any Chinese purchases, the U.S.’s top ethanol customer so far in 2016. Canada was the largest buyer in July, purchasing 19.93 million gallons, while Brazil and the Philippines were the next largest buyers, importing 15.17 million and 10.28 million gallons, respectively.
Ethanol margins are stronger this week after production fell 35,000 barrels per day last week. Production for the prior week was 998,000 barrels per day, a decrease of nearly 3 percent. The decreasing production drew stocks lower as well, with stocks closing the week at 20.654 million barrels, down more than 300,000 barrels from the prior week. Consumption of gasoline was buoyed by the Labor Day weekend and increased more than 150,000 barrels per day from the week prior.
The margin between the corn price and the value of ethanol and coproducts was higher this past week across the four reference markets (see below), while the spread versus this time last year continues to remain positive.
- Illinois differential is $2.02 per bushel, in comparison to $1.86 the prior week and $1.72 a year ago.
- Iowa differential is $1.96 per bushel, in comparison to $1.82 the prior week and $1.57 a year ago.
- Nebraska differential is $1.69 per bushel, in comparison to $1.53 the prior week and $1.44 a year ago.
- South Dakota differential is $2.07 per bushel, in comparison to $1.90 the prior week and $1.82 a year ago.