Market Perspectives April 17, 2014

DDGS Comments: On average DDGS prices did decline this past week, but price reductions were not consistent or uniform. Domestic DDGS rates for barge and vessel delivery to the Gulf of Mexico declined by about $10 per MT. Domestic prices also declined for delivery to the eastern destinations of the United States because of improved logistical movement in that region of the country. As well, some of the eastern buyers of DDGS had previously “doubled-down” on their DDGS orders and had sufficient stocks on hand to take care of their near-term needs. Alternatively, rail issues continue to exist in getting product to some of the United States’ western domestic markets; rail delivered DDGS prices into the Pacific Northwest (PNW) increased by $10/ MT and by $17/MT into California for the month of May.

Rates for containerized exports of DDGS declined for all Asian locations except Malaysia and Indonesia this past week. The higher rates into these two locations are presumably related to freight costs. The containerized DDGS costs to the other Asian locations declined last week by an average of $7/MT for May delivery, $10 for June delivery, and $4 for July delivery. Also consider that the average price for DDGS into those other Asian locations in the months of June and July are about $6 less than for May. This fact is an additional testament to the advantage buyers can have by purchasing ahead rather than constantly remaining in the spot market.

One DDGS merchandiser reports that he is trading for the July/August/September period at $15 below his current May asking price and $25 dollars below his May price for the October/November/December time period. While such spreads may not widen any further, it is possible that the nearby May prices for corn and DDGS could have some more downside in the near-term. (Please see the preceding discussion in the Outlook section of today’s report.) Both domestic and foreign buyers seem to be utilizing setbacks in DDGS prices as opportunities for scale down buying. Vietnamese buyers purchased 2,500 MT of DDGS this past week for the June to July time period. There are currently plenty of inquiries seeking lower rates and so additional buying seems likely if DDGS prices continue to drift lower for the next few weeks.

Ethanol Comments: Additional ethanol facilities have come back on line after performing spring maintenance. As a result, U.S. ethanol production increased to an average daily rate of 939,000 barrels per day (bpd) for the week ending April 11. That is a fairly substantial increase from the prior week’s average daily level of 896,000 bpd. Such an increase is anticipated to further compress the differential between the spot prices of co-products in comparison to corn (data for which is not available this week due to Friday being a holiday), but that differential may not decline too fast because ethanol stocks shrank even as the weekly production increased.

U.S. ethanol stocks declined from 16.4 to 16 million barrels for the week ending April 11. As well, ethanol imports fell back to zero from the prior weeks’ level that averaged 38,000 bpd. This fact could imply that ethanol imports may only become cost effective when U.S. ethanol margins are at pronounced levels, which was temporarily the case due to recent adverse winter weather.

Rail related logistical issues have improved, ethanol production has increased and margins are expected to decline back down toward recent historical norms. However, the decline in stocks implies that demand remains strong for U.S. corn-based ethanol and the drop off in sugar-based ethanol imports seems to imply that competition is presently limited for U.S. facilities.