Distillers Dried Grains with Solubles (DDGS)
DDGS Comments:
DDGS had a mixed week as prices varied from $5.00 lower to $5.00 higher. It seems that foreign buyers still have some inventory gaps to fill between now and harvest. Several merchandisers reported that export demand is strong for shipment through March. Most of that demand continues to be for containers but there is also a growing interest in purchasing for the bulk market as well. DDGS merchants note that logistical factors this fall could become “interesting” as competition heats up for available containers.
Domestic buyers continue to monitor the inverse in corn futures and purchase for their immediate needs. Corn harvest is beginning in parts of Texas and will move northward as the season progresses. This harvest is pressuring the southern basis so that end-users in those regions are now paying just slightly more for their delivered corn than ethanol plants further north. The result is that some of the domestic poultry DDGS users are requesting lower prices.
According to a recent article by Dave Juday of World Perspectives, the largest consumers of DDGS are the beef sector (41%), dairy (26%), exports (23%), pork (6%) and then poultry (4%). Buyers in all of these sectors may seek to extend coverage of the DDGS purchases as inverted old-crop prices decline and it becomes increasingly evident that a bottom is forming in the new-crop corn market.
Ethanol Comments: EPA announced this week that the 2013 blending mandate will remain unchanged at 13.8 billion gallons of ethanol but the agency hinted that adjustments could be made to 2014 requirements. This is a rather important issue for ethanol facilities because it implies that market conditions could become increasingly competitive next season. The strongest position next year will likely be held by ethanol producers who are able to secure contract agreements on production and lock-in profitable hedges. Opportunities are currently presenting themselves for the development of such strategic initiatives. The opportunity is not indefinite because futures prices are increasingly relaying a message to farmers that they need to expand into soybeans and reduce their corn acreage next season. If so, corn prices could be higher in the second half of 2014.
Last week’s consistent increase in ethanol producer margins caused production to rebound this week to 853,000 barrels per day (bpd), up from 832,000 bpd the prior week. Imports also increased to 56,000 bpd, up from 13,000 bpd the prior week. Ethanol stocks grew to 16.7 million barrels which is up from the prior week’s level of 16.5 million barrels. The present stock levels of 16.7 million barrels is still 10.4 percent below a year ago and 7.5 percent below the stock levels of two years ago. The lower year-to-year stock levels have been important in enabling ethanol producers to maintain recently favorable margins. The differentials between corn and co-products values indicate that ethanol producer margins declined this week in three of the four following regions:
– Illinois differential increased to $2.41 per bushel. Up from $2.26 the prior week and above $1.41 for this same week a year ago.
– Iowa differential decreased to $2.37 per bushel. Down from $2.58 the prior week but above $1.47 for this same week a year ago.
– Nebraska differential decreased to $2.01 per bushel. Down from $2.09 the prior week but above $1.70 for this same week a year ago.
– South Dakota differential decreased to $2.47 per bushel. Down from $2.51 the prior week but above $2.04 for this same week a year ago.