Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: Containerized DDGS rates fell by significant amounts this week as merchandisers are forced to competitively realign their customer base since Chinese buyers are being locked out of the market to U.S. DDGS by actions taken by their own government. That is unfortunate because Chinese customers have developed a strong appreciation for DDGS, with the trade eventually accounting for more than half of the global DDGS exports. The forced alternation to their demand has resulted in some dramatic price shocks, but the market will adjust as new destinations are increasingly found.
In the search to broaden the customer base, merchandisers are presently offering DDGS at values that are substantially discounted to the price of corn. Merchandisers are seeking new clients who have a reputation of dependability. The merchandiser’s strong interest in obtaining a dependable customer base can work to the good of a buyer who is willing to establish a relationship that maintains consistent product flow. Domestic buyers seem to recognize this and a number of feedlots are reported to be showing interest in obtaining more DDGS.
Domestic buyers remain the largest consumers of DDGS and many of those experienced buyers seek to negotiate extended contracts in periods when feed prices are weak, especially because they know that prices normally do not stay at extreme highs or lows. (The outlook section at the beginning of this week’s publication discusses the topic of future changes in market conditions.) The preceding table covering DDGS prices shows that market participants anticipate higher prices in October, presumably because the customer base is expected to have stabilized by that point in time.
Ethanol Comments: Export demand for U.S. ethanol is coming from locations such as India and the Middle East, reports a story by Dow Jones. That story basically confirms what was being indicated in EIA’s weekly data over the past couple of months. Those stable exports and weak corn prices have allowed ethanol facilities to maintain sizable production levels and favorable margins. Unfortunately, declining DDGS prices may become somewhat of an anchor on ethanol producer returns.
Even though spot corn prices continued to decline this week, the drag of weaker DDGS prices seemed to offset that benefit. The differential between the cost of corn and the co-products at ethanol facilities are the following for week-ending Friday, August 1, 2014:
- Illinois differential is $3.41 per bushel in comparison to $3.51 the prior week and $2.26 a year ago.
- Iowa differential is $3.26 per bushel in comparison to $3.32 the prior week and $1.86 a year ago.
- Nebraska differential is $3.12 per bushel in comparison to $3.22 the prior week and $2.09 a year ago.
- South Dakota differential is $3.68 per bushel in comparison to $3.67 the prior week and $1.70 a year ago.