Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: Strong interest in bulk DDGS exports is one reason that rates to the Gulf of Mexico were unchanged this past week while declining from $2-3/MT domestically and down approximately $5/MT in the containerized export market. The fact that an additional discount of about $4/MT is being offered on containerized rates for the next two months out into the future indicates that DDGS merchandisers are willing to incentivize pricing agreements. That same pricing advantage is not being offered to domestic buyers who primarily purchase on an as needed basis in the spot market.
DDGS merchandisers seem to recognize that the May corn contract at current prices around $3.75 per bushel probably has limited downside because that means cash corn is probably trading around $3.55 per bushel. U.S. farmers are reluctant to sell at any lower price level as they will be losing money. Consequently, many DDGS merchandisers recognize that the market is presently offering them an opportunity to extend their corn purchases at favorable price levels. It is much easier for the merchandisers to justify corn purchases into the future and then offer favorable pricing to preferred customers when they can show their own senior management that there is a written sales agreement on future DDGS production.
Ethanol Comments: Large crude oil stocks have garnered a great deal of attention lately, but ethanol prices are primarily determined by price; and the price crude oil has been slowly trending higher in a trading range since the middle of March. The present U.S. ethanol stocks of 20.5 billion barrels are unchanged from the prior week, but they are not growing. As well, the average daily production rate of 936,000 barrels per day (bpd) for week ending April 3, 2015 declined from the prior-week’s rate of 952,000 bpd.
Controlled ethanol production is occurring even through the spot price of corn has recently fallen in comparison to the prices of ethanol and DDGS. The differential between the spot price of corn and the co-products is the following in different sections of the Corn Belt for week ending April 10, 2015:
- Illinois differential is $2.32 per bushel in comparison to $2.20 the prior week and $5.47 a year ago.
- Iowa differential is $1.99 per bushel in comparison to $1.88 the prior week and $5.31 a year ago.
- Nebraska differential is $1.68 per bushel in comparison to $1.51 the prior week and $5.52 a year ago.
- South Dakota differential is $2.19 per bushel in comparison to $1.98 the prior week and $5.84 a year ago.