Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: The present setback in the price of Chicago corn futures contracts and the prospect of the likelihood for lower freight rates beginning in June has enabled containerized DDGS rates to Asian destinations to fall by more than $20/MT this past week. DDGS bulk rates to the Gulf of Mexico declined by $7-9/MT and the price for domestic buyers was down about $4/MT. Only rail rates to California and the Pacific Northwest were unchanged to slightly higher due to logistical costs.
A number of Chinese feed buyers have been watching as relatively weak demand within their own domestic market pressed on internal protein meal prices. They decided to watch and see if more favorable DDGS prices evolved before making additional purchases. The patience of these buyers has paid off this time with a better pricing opportunity becoming available. That same opportunity is being presented to all other Asian buyers, with the largest decline in price being offered to Japanese buyers.
DDGS merchandisers are being pressured to reduce prices by competing feed ingredients as futures contracts currently decline for soybean meal and corn. However, planting is not even half complete for these crops in the U.S. Corn Belt, thus the present sell-off is anticipated to be temporary before prices rebound.
Ethanol Comments: Recent declines in the price of corn and increases in the price of gasoline have encouraged some modest growth in ethanol production. The average daily rate of production increased to 930,000 barrels per day (bpd), up from the prior week’s daily production rate of 924,000 bpd. This growth contributed to an increase in ethanol stocks to 21.3 million barrels for the week ending April 17, 2015. This is 3.4 percent larger than the prior week’s level of 20.6 million barrels. The joint increase in production and stocks happened in conjunction with an increase in ethanol imports at a rate of 53,000 bpd. The composite of increases in stocks and imports is less than desirable and could dampen ethanol prices without a more substantial offsetting increase in demand.
Ethanol production is unlikely to decline if margins do not tighten. The differential between the price of corn and the spot price of corn and co-products improved across the Corn Belt for the week ending April 24, 2015:
- Illinois differential is $2.40 per bushel, in comparison to $2.38 the prior week and $4.29 a year ago.
- Iowa differential is $2.11 per bushel, in comparison to $2.00 the prior week and $3.92 a year ago.
- Nebraska differential is $1.95 per bushel, in comparison to $1.89 the prior week and $3.64 a year ago.
- South Dakota differential is $2.31 per bushel, in comparison to $2.19 the prior week and $4.20 a year ago.