Market Perspectives August 21, 2015

Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: DDGS prices have been reduced this past week as merchandisers seek to encourage buyers to increase the volume of purchases into the future. Chinese buyers have not been able to full take advantage of lower offers due to uncertainties about their own domestic regulations coming from the Chinese government that could momentarily influence DDGS imports as the Chinese government accesses their own corn stocks. This is creating an opportunity for other buyers as DDGS merchandisers extend lower offers to buyers of bulk volume and buyers within the United States’ market.

The price for DDGS delivered by barge to the Gulf of Mexico declined on average by $8/MT for nearby purchases and by $14/MT for the October to November time period. This pricing arrangement means that bulk DDGS are currently being offered into the future with a $3-$5/MT discount under the already inexpensive spot delivery. While bulk buyers were offered the largest discounts this past week, containerized rates also declined on average by $5/MT. Various Asian buyers may wish to consider these offers in conjunction with the fact that there is expected to be no General Rate Increase (GRI) on freight before November.

Domestic U.S. buyers of DDGS were also offered substantial price declines this past week that averaged $11/MT for spot delivery by rail, along with additional $1-2/MT discounts for rail delivered DDGS one to two months into the future. This composite of opportunities is presently being offered because DDGS merchandisers are anxious to sell their remaining inventory for the busy fourth quarter of calendar year 2015.

Ethanol Comments: The fact that total U.S. ethanol stocks of 18.6 million barrels are now only 1.7 percent larger than the year-ago stocks level of 18.3 million barrels strengthens the correlation of ethanol with the price action of RBOB gasoline contracts. Unfortunately, gasoline contracts have been in a constant decline since mid-summer. The cost of corn has also been in decline since the second half of July however that has not offset the price weakness of the co-products during the same time period. The result is that recent margins for ethanol producers have been relatively stable but consistently remain well below the year-ago level. The spot differential between the cost of corn and the co-products was the following for week ending August 21, 2015:

  • Illinois differential is $1.77 per bushel, in comparison to $1.69 the prior week and $3.55 a year ago.
  • Iowa differential is $1.81 per bushel, in comparison to $1.74 the prior week and $3.29 a year ago.
  • Nebraska differential is $1.48 per bushel, in comparison to $1.41 the prior week and $3.31 a year ago.
  • South Dakota differential is $2.16 per bushel, in comparison to $2.18 the prior week and $3.90 a year ago.