Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: Merchandisers were in agreement that DDGS prices showed some recovery this past week. Demand has still not returned to full strength but fourth quarter prices seem to be consistently holding a $5-10/MT premium over SEP prices. That fact seems evident in the reported rates and estimates in the pricing table. In relation to September prices, there were some containerized sales to Vietnamese buyers at $227/MT, for September shipment. Vietnamese buyers have become increasingly skilled at correctly interpreting market conditions in the past few years.
Buyers from other Asian destinations, such as Thailand and the Philippines, are also making pricing inquires – but in many instances there continues to be about a $10/MT difference between the bid and asking price. As buyers and merchandisers negotiate with each other on that spread, a general rate increase (GRI) seems to be to be developing in logistical channels for the late November or early December time period. Current market discussion is that freight rates could go up as much as $200 for 40-foot containers.
A number of ethanol facilities are presently operating at full capacity and the affiliated DDGS merchandisers have a lot of product to move, and they sound ready to negotiate with any buyer who is willing to acquire substantial volume. The largest increases in demand have come this past week from the domestic feed mills and feed lot operations. Those domestic buyers often focus heavily upon basis and the price of differential of DDGS in relation to cash corn, and their increased interest seems to indicate that they perceive an opportunity.
Ethanol Comments: USDA increased corn used for ethanol production in the expiring 2013/14 season by 45 million bushels and by 25 million bushels in the approaching 2014/15 season that begins September 1. The increases stem in large part from the strong export demand for corn based ethanol. That demand is indicated in the fact that ethanol production increased from an average daily rate of 902,000 barrels per day (bpd) to 931,000 bpd while U.S. ethanol stocks dropped from 18.3 to 17.8 million barrels in the same period. Market dynamics seem able to facilitate present ethanol production levels if there is no substantial decline in global gasoline prices and/or increase in corn prices.
USDA seems to have accounted for the likelihood of strong corn demand coming from the ethanol industry as much of the increase in global coarse grain consumption in 2014/15 is due to U.S. domestic consumption. The estimate for E.U. corn consumption was actually lowered by 2 MMT because heavy rains have reduced wheat quality and increased the prospects for more of their own wheat feeding.
Delayed consumption from the E.U. and China should allow ethanol facilities sufficient time to price out their corn needs well into the 2014/15 season. However, those two buyers will not remain out of the market forever. As well, USDA is forecasting that other global buyers, such as Egypt, Saudi Arabia, South Africa, Algeria and Taiwan will increase their purchases.
The differential between the cost of corn and the co-products at ethanol facilities implies that spot margins rebounded this past week across the Corn-Belt. The differentials are the following for week-ending Friday, August 15, 2014:
- Illinois differential is $3.55 per bushel in comparison to $3.16 the prior week and $2.40 a year ago.
- Iowa differential is $3.47 per bushel in comparison to $3.17 the prior week and $2.37 a year ago.
- Nebraska differential is $3.50 per bushel in comparison to $3.02 the prior week and $2.02 a year ago.
- South Dakota differential is $3.81 per bushel in comparison to $3.31 the prior week and $2.47 a year ago.