Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: DDGS prices were sharply higher this week, led by increases in the FOB Gulf market. The price jump was motivated by increased buying interest that is being reported by merchandisers across the U.S. Some report that container prices are rising and container availability is being factored in along with the typical post-Chinese New Year tightness in the market. Prices for 40-foot containers to Southeast Asia were up $5/MT on average this week with Malaysian and Indonesian buyers leading the way.
FOB Gulf prices were up $3/MT for February shipment this week and reached 90 percent of FOB corn values for the first time in 2017. Interestingly, prices for Barge CNF NOLA and FOB Gulf shipments are increasing through April. The shape of the forward curve may be signaling higher demand and possibly tighter supplies in the coming months.
Higher soybean meal prices are certainly helpful to the DDGS market right now. After their mid-January race higher, nearby futures prices retreated, found support, and are starting to move higher again. The price action is increasing the competitiveness of DDGS in feed rations, where the per-protein unit cost of DDGS (FOB ethanol plants) is now $3.32 less than for soybean meal. On the FOB Gulf market, soybean meal gained $5/MT this week, leaving the FOB per-protein unit cost of DDGS $2.02 less than that of soybean meal.
Ethanol Comments: Ethanol production retreated from last week’s record high, with daily output falling 6,000 barrels to 1.055 million for the week. As has become commonplace to note in many analytical articles, this pace is still well above any previous records or averages for this time of year. Despite the production slowdown, ethanol stocks grew 1 percent last week to 22.085 million barrels even as gasoline consumption increased by 8 percent. The jump in gasoline consumption and stocks together is concerning for the industry as it may be indicative of an export slowdown. Ethanol exports have been brisk this year (up 27 percent through December 2016) and have added significant value to ethanol producers’ margins. A prolonged export downturn would certainly apply strong economic pressure to the ethanol industry. However, the start of the U.S. spring driving season is only weeks away and the seasonal increase in consumption could ward off any effects of slowing exports.
Gains were noted in production margins across all four reference markets this week. On average, margins increased $0.12/bushel this week and stand $0.11/bushel higher that one year earlier. Iowa margins saw the strongest gains while more modest improvements were noted in Illinois, Nebraska, and South Dakota.
- Illinois differential is $1.28 per bushel, in comparison to $1.18 the prior week and $1.29 a year ago.
- Iowa differential is $1.23 per bushel, in comparison to $0.99 the prior week and $1.16 a year ago.
- Nebraska differential is $1.35 per bushel, in comparison to $1.27 the prior week and $1.39 a year ago.
- South Dakota differential is $1.81 per bushel, in comparison to $1.74 the prior week and $1.38 a year ago.