Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: The range of spot prices varied from a couple dollars higher to $5.00 lower due to the volatile futures market. Buyers are becoming increasingly enticed by the discount of this year’s DDGS prices in relation to year ago levels. One merchandiser reported that he sold 4,000 metric tons (MT) for Chicago truck values at $269/MT. A different merchandiser reported that he has some September sales for 2,000 MT to Shanghai/Qingdao at $339/MT and another 2,000 MT to Nansha at $343/MT. While those sales were for September, there seems to be plenty of interest from both existing and new clients for more distant pricing.
A substantial amount of the extended pricing inquiries are coming from Chinese buyers, with several looking to price and secure shipments out through April 2014. The logistics around these more distant shipments is becoming increasingly concerning due to tight container supplies, especially in the fourth quarter. A merchandiser who is particularly active in the Asian market noted that one freight forwarder warned him to be ready for container freight increases. He was told that $100/40′ has been proposed for the September rate; to add on an additional $100/40′ for October and then do so again for November. Such discussions may partly explain the recent activity by Chinese buyers and the market talk that seven bulk vessels of DDGS have been sold in the last seven weeks, all going to China.
Ethanol Comments: The preceding Outlook section notes the opportunity that lower corn prices are offering to ethanol producers to lock in profitable hedges, particularly if a production agreement can be arranged with the blender. The blender’s interest in such pricing arrangements may be enhanced by the fact that lower corn prices make corn-based ethanol increasingly cost competitive against sugar-based ethanol.
Constraining sugar-based ethanol imports through competition is desirable because U.S. gasoline consumption has leveled off, which makes the E10 blend wall more challenging. It is advantageous for corn based ethanol producers to maintain domestic market share and to be a competitive alternative in export markets. Thus, the setback in corn prices has improved those marketing prospects. Note that USDA launched a program to buy domestic sugar under the Feedstock Flexibility Program (FFP), more commonly known as the sugar-for-ethanol program.
Ethanol imports declined last week to an average of 36,000 barrels per day (bpd), which is about a 36 percent decline from the prior-week’s average ethanol imports of 56,000 bpd. Ethanol production increased slightly to 857,000 bpd, which stands in comparison to the prior week’s production of 853,000 bpd. That production increase was more than offset by a moderate decline in total U.S. ethanol stocks to 16.4 million barrels, which is down from 16.7 million barrels the prior week, and more than 10 percent below the year ago level of 18.4 million barrels.
In relation to year ago margins, they are most favorable in regions around the states of Illinois and Iowa and weakest in Nebraska, which is implied in the following differentials between corn and the value of co-products values:
– Illinois differential remained about the same at $2.40 per bushel, compared to $2.41 the prior week and above $1.61 for this same week a year ago.
– Iowa differential decreased to $2.28 per bushel, which is down from $2.37 the prior week but above $1.58 for this same week a year ago.
– Nebraska differential remained about the same at $2.02 per bushel, compared to $2.01 the prior week and just above $1.98 for this same week a year ago.
– South Dakota differential increased to $2.57 per bushel, which is up from $2.47 the prior week and above $1.90 for this same week a year ago.