Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: DDGS prices were lower this past week because some buyers have stepped back in order to better define their purchasing strategies for the fourth quarter of 2015. There has been a notable slowdown by Chinese buyers. However, their decline in purchases is not necessarily because they assume there is a lot more downside to current prices, but instead because they seem uncertain about potential changes to their own government’s policies. For example, the Commerce Ministry is requiring all buyers to register imports of DDGS, sorghum and barley imports beginning September 1. This requirement seems to be initially intimidating some Chinese buyers, but their concerns may not last long if the registration process is the only constraint.
In the meantime, buyers from other Asian nations such as Vietnam and Indonesia do seem to recognize that current global price levels for feed have limited downside, and they have expressed interest in extending their coverage into the first quarter of 2016. These buyers are entering the market at an excellent time because there are a number of DDGS merchandisers who have increasing amounts of inventory to sell at attractive price levels. The result is that DDGS prices declined by an additional $5/MT for both international and domestic buyers this past week. One sale occurred for 1,600 MT of DDGS to Ho Chi Minh City (HCMC) in Vietnam for October shipment. There are reported to be additional buyers from Vietnam and Korea who are also quietly probing for potential purchases while there is a lull in demand. Those buyers still have some time to search for pricing opportunities. However, total demand for DDGS is expected to rebound once the U.S. corn harvest is largely complete, because rail freight rates generally decline and that will presumably encourage buyers from Mexico, Canada and the U.S. West Coast to increase their own purchases.
Ethanol Comments: After trading below $40 per barrel for the first part of this week, the nearby October crude oil contract made a sharp rebound to close above $45 per barrel for the week ending Friday, August 28, 2015. The implication of this price action is that reduced gasoline prices is stimulating increased demand for crude, and presumably the same for ethanol.
Unfortunately, increased demand for ethanol is not being reflected in the weekly data from the Energy Information Administration (EIA) which shows that total U.S. ethanol stocks remained stationary for week ending August 21, 2015. Those stocks remained stationary even though there was a slight reduction in the average daily production rate to 952,000 barrels per day (bpd), down from the prior week’s level of 965,000 bpd. As well, the spot differential between the cost of corn and the co-products has not improved in the most recent data for the week ending August 28, 2015:
- Illinois differential is $1.64 per bushel, in comparison to $1.77 the prior week and $3.41 a year ago.
- Iowa differential is $1.63 per bushel, in comparison to $1.81 the prior week and $3.32 a year ago.
- Nebraska differential is $1.45 per bushel, in comparison to $1.48 the prior week and $3.28 a year ago.
- South Dakota differential is $2.15 per bushel, in comparison to $2.16 the prior week and $3.80 a year ago.