Market Perspectives April 25, 2014

DDGS Comments: Domestic demand for DDGS picked up as barge movement has increased. Barge demand is presently in competition against the truck, rail and container demand for available DDGS. The expectation is that this additional demand could stabilize prices until about June. After that DDGS prices will be primary influenced by the price action of corn contracts. Please see the Outlook discussion for more details about future price action.

A recent opportunity for better DDGS pricing was presented as corn contracts sold off last week into the first part of this week. Containerized freight rates also declined, by approximately $10 per metric ton, to various Asian locations such as the Philippines, Malaysia, Indonesia and Taiwan. The current reduced demand from Chinese buyers is presumably one major factor for these lower rates. Local rail rates have not necessarily come down to the same extent, but DDGS merchandisers can work on the buyer’s behalf if they are given sufficient time.

Buyers from Southeast Asia and domestic buyers of DDGS have both been able to benefit from the recent reductions in DDGS prices. Merchandisers report that Chinese buyers are asking for quotes for the August forward time period. As a result, both domestic and Southeast Asian buyers may wish to discuss covering their own needs in that time period while the existing opportunity presents itself.

Ethanol Comments: Market discussion is that prospects look good for the U.S. Environmental Protection Agency (EPA) to slightly increased the final RFS requirements for 2014 from 13.2 to 13.5 billion gallons. The size of the increase is not nearly as important at the precedence of making an increase. The EPA’s decision relating to this issue is likely to be released some time in June.

U.S. weekly ethanol production backed off to an average rate of 910,000 barrels per day (bpd) from the prior week’s level of 939,000 bpd. A difference between the two weeks is that in the latter week production increased and stocks shrank while the opposite happened in the former week ending April 18. Stocks for week ending April 18 increased up to 16.5 million barrels from the prior week’s level of 16 million barrels. That fairly sizable increase is still 6.1 percent below the year-ago level of 17.6 million barrels, but the annual percentage difference is shrinking. Ethanol imports have returned, at an average rate of 11,000 bpd, and are contributing to the increase in stocks.

Ethanol production is likely to continue at the present rate as the differential between corn and the co-products implies that ethanol producers are continuing to enjoy very favorable margins. The differentials for the week ending Friday, April 25 2014 are as follows:

– Illinois differential is $4.29 per bushel, in comparison to $4.89 the prior week and $2.54 a year ago.
– Iowa differential is $3.92 per bushel, in comparison to $4.17 the prior week and $2.14 a year ago.
– Nebraska differential is $3.64 per bushel, in comparison to $3.89 the prior week and $2.53 a year ago.
– South Dakota differential is $4.20 per bushel, in comparison to $4.72 the prior week and $2.36 a year ago.