Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: DDGS merchandisers and buyers continue to discuss pricing opportunities within market conditions that have recently become more uncertain, due to factors such as bearish USDA data and Chinese government actions; namely, devaluation of the Yuan and increased documentation requirements by the Chinese Ministry of Commerce for feed imports. Of these two latter events, Chinese buyers seem more concerned about the consequences of a changing exchange rate rather than increased documentation.
After the release of USDA data on August 12, the price of containerized DDGS dropped about $10/MT and the price of bulk DDGS delivered to the Gulf of Mexico declined about $5/MT. However, domestic prices were virtually unchanged and even increased slightly for DDGS that are transported by rail to the U.S. West Coast. Rail rates may remain firm as competition for freight will increase as the U.S. grain harvest gets underway. It seems that foreign buyers from Vietnam and China may be anticipating such developments as both are actively seeking offers for the September and October time period.
Ethanol Comments: The fact that crude oil contracts declined this past week to their lowest levels in more than six years has apparently not weighed too heavily on demand for ethanol. Rather, total U.S. ethanol stocks showed a rather sizable decline for week ending August 7 to 18.5 million barrels from the prior week’s level of 19.2 million barrels. This decline in total stocks occurred while there was a modest increase in the average daily rate of ethanol production to 965,000 barrels per day (bpd) from the prior week’s rate of 961,000 bpd. Additionally encouraging is the fact that the current total ethanol stocks are only 4.3 percent larger than the year-ago level. Such narrowing of the year-over-year change in total stocks occurred even though the present production rate ran 3.7 percent above year ago.
Without additional increases in the price of corn, further increases in the average U.S. production rate of ethanol seems unlikely because the spot differential between the cost of corn and the co-products continues to weaken, as the following data shows:
- Illinois differential is $1.69 per bushel, in comparison to $1.84 the prior week and $3.55 a year ago.
- Iowa differential is $1.74 per bushel, in comparison to $1.77 the prior week and $3.47 a year ago.
- Nebraska differential is $1.41 per bushel, in comparison to $1.44 the prior week and $3.50 a year ago.
- South Dakota differential is $2.18 per bushel, in comparison to $2.20 the prior week and $3.81 a year ago.