Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: Corn futures contracts finally showed some stability this week after six weeks of decisively weak technical chart action. During this week, the sharp declines in DDGS prices also halted. Containerized DDGS prices bounced back up almost $30/MT for August and September and up about $15/MT for October. Domestic buying was less enthusiastic and averaged up about $5/MT. There is an apparent difference in DDGS purchasing strategies as some buyers have decided to purchase prior to the publication of the August WASDE report next Tuesday, August 12, and others have decided to wait for more definitive confirmation that a bottom truly has been established in corn futures contracts.
There seems to be almost universal certainty among market participants that USDA will increase their estimate for U.S. corn yields in next Tuesday’s report, but the prospects are less certain about corn production estimates for other global regions such as China and Ukraine. As well, unstable financial conditions in Argentina and potential conflict in the Black Sea region are additional uncertainties that are keeping global buying interest strong in the United States, essentially recognizing the country as the primary source of feed grains in the beginning of the 2014/15 season. (That topic is elaborated on in the Outlook section of today’s report.)
During the past year, there has been an increasing tendency for futures contracts to sell off sharply prior to the release of a key USDA report and then bounce back afterward as market conditions have become more bearish. Similar anticipatory behavior has been expressed prior to the release of the approaching August WASDE. It will be interesting to see if corn prices are able to maintain their downward trend after the report is published or not. DDGS buyers are encouraged to watch the reaction of both futures and cash prices after the report in order to create an effective purchasing strategy.
Ethanol Comments: Data from the U.S. Census was published Wednesday and shows total U.S. ethanol exports for fuel and other industrial uses increased by 56 percent during the first six months of this year, reports a story by Platts. The most recent June figures were 13 percent above May levels and 76 percent above year-ago levels. The importance of this fact is the indication that recent growth in ethanol exports is not a waning development.
Export demand for ethanol has recently helped reduce ethanol stocks faster than increases in production. Continued export flow is indicated in the fact that U.S. ethanol stocks declined from 18.6 to 18.3 million barrels for the week ending August 1, while there was a lesser decline in ethanol production during that same period of 954,000 barrels per day (bpd) to 902,000 bpd. It helps to maintain a more favorable production margin by having the percent year-over-year increase in stocks remains less than the percentage increase in production.
The end of the summer driving season and the eventual bottoming in corn prices could cause margins for ethanol producers to decline into year’s end. The differential between the cost of corn and the co-products at ethanol facilities implies that spot margins are likely to be in decline, but those margins remain well above year-ago levels across the Corn-Belt. The differentials are the following for the week ending Friday, August 8, 2014:
- Illinois differential is $3.16 per bushel, in comparison to $3.42 the prior week and $2.41 a year ago.
- Iowa differential is $3.17 per bushel, in comparison to $3.26 the prior week and $2.58 a year ago.
- Nebraska differential is $3.02 per bushel, in comparison to $3.12 the prior week and $2.01 a year ago.
- South Dakota differential is $3.31 per bushel, in comparison to $3.68 the prior week and $2.51 a year ago.