Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: This past week began with corn futures contracts breaking lower and a number of domestic buyers of DDGS taking the opportunity to purchase when the reduces prices were presented. The initial drop in the price was more than $10/MT to the West Coast of the United States and by about $5/MT to the Gulf of Mexico. That opportunity was rather short lived as corn contracts worked steadily higher throughout the remainder of the week.
The prices of corn futures contracts are presently structured to reflect the cost of storage. For example, the cost of the July corn contract is higher than the price of the May contract because of the cost of storage over several months. However, DDGS merchandisers are currently offering prices in the June and July time period that are below the price of DDGS in May. In other words, the DDGS merchandisers are absorbing the additional storage costs themselves and offering better prices to their customers. As a result, most Asian buyers are presently able to purchase containerized DDGS for June and July that are from $3-5/MT below the cost of May.
If a weather concern develops within global grain markets, then the nearby corn futures contract commonly increases above the more distant contracts. If such an event happened, it would then become difficult for merchandisers to continue offering the same favorable terms to customers. Domestic buyers could be particularly hurt in such a situation because they prefer to purchase in the spot market, and DDGS merchandisers could not help them when the nearby corn contract is priced above the more distant contracts. As well, the creation of a longer-term pricing agreement is normally also less favorable when the nearby corn futures contract is priced higher than the distant months.
Ethanol Comments: The year-ago ethanol production level of 939,000 barrels per day (bpd) exceeded the current production rate of 924,000 bpd this week. The weekly ethanol production rate may continue to decline as tighter margins are encouraging a number of plants to shut down for spring maintenance earlier this season than last season. There simply is no incentive to limit downtime when returns are breakeven and ethanol stocks are not yet decreasing. This season, the opportunity seems to exist for more extensive maintenance.
The present U.S. ethanol stocks level of 20.6 million barrels is basically unchanged from the prior week’s level of 20.5 million barrels and the differential between the spot price of corn and co-products is also unchanged, despite the lower corn prices this past week. The differential between the spot price of corn and the co-products is the following for key quadrants of the Corn Belt from the week ending April 17, 2015:
- Illinois differential is $2.38 per bushel, in comparison to $2.32 the prior week and $4.89 a year ago.
- Iowa differential is $2.00 per bushel, in comparison to $1.99 the prior week and $4.17 a year ago.
- Nebraska differential is $1.89 per bushel, in comparison to $1.89 the prior week and $3.89 a year ago.
- South Dakota differential is $2.19 per bushel, in comparison to $2.19 the prior week and $4.72 a year ago.