Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: DDGS prices declined for both the domestic and international markets this past week. The largest price declines were offered on containerized DDGS and averaged about $6/MT, but the difference between the largest price reduction, to Japan, and the smallest price reductions, to Thailand and China, was more than $10/MT. It appears that some of the merchandisers were seeking to court stable Japanese business.
A number of buyers seem inclined to wait on USDA’s publication of market data on August 12 to see if there is any additional price weakness. A number of Asian buyers noted that they would like to see an additional $10-15/MT decline from current price levels for DDGS in the last quarter of calendar year 2015. However, DDGS merchandisers are hesitant to sell DDGS inventory in that time period for lower or even money because corn futures contracts have the cost of carry priced into them.
There is some market discussion that China may seek to decrease feed stocks by reducing domestic corn prices, but there would have to be a significant decline in order to fully offset the demand of Chinese consumers who have learned to appreciate the price and quality of U.S. DDGS and corn. Those customers purchase about 15 percent of U.S. DDGS production, but Chinese government policies caused their demand to vary last year and buyers from other locations increased their purchases. Furthermore, the majority of ethanol facilities presently have enough available storage that they prefer to hold their future prices stable at the moment.
Ethanol Comments: Ethanol producer margins tended to improve slightly this past week as total U.S. ethanol stocks declined to 19.2 million barrels for week ending July 31, 2015. That is down from the prior week’s level of 19.6 million barrels. Most importantly, that figure is up only 5.4 percent above the year-ago level. The year-to-year difference has been consistently declining for the past two months. As well, the average daily production rate fell to 961,000 barrels per day (bpd) from the prior week’s level of 965,000 bpd. There was also a slight improvement in the spot price differential between the co-products (ethanol and DDGS) and corn for the week ending August 7, 2015:
- Illinois differential is $1.84 per bushel, in comparison to $1.80 the prior week and $3.16 a year ago.
- Iowa differential is $1.77 per bushel, in comparison to $1.69 the prior week and $3.17 a year ago.
- Nebraska differential is $1.44 per bushel, in comparison to $1.38 the prior week and $3.02 a year ago.
- South Dakota differential is $2.20 per bushel, in comparison to $2.15 the prior week and $3.31 a year ago.