Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: This was the first time since July 10 that the price of the March corn contract has closed above $4.00 per bushel. The increasing price of corn is a primary reason that both domestic and export prices for DDGS increased this past week by approximately $20/MT. However, there are also other price influencing factors, such as active rumors about the potential return of certain large Asian buyers. While those rumors can be neither confirmed nor denied, it is fact that there was purchasing this past week by other Asian buyers as a sale occurred: Kaohsiung Taiwan at $266 for February. As well, Vietnamese buyers received offers for $260 to HCMC for January/February.
Current uncertainty about potential demand has sparked a lot of inquiry among both domestic and foreign DDGS buyers. DDGS merchandisers welcome such discussions because last week’s ethanol production set a new high, and so there is a significant amount of DDGS being produced. The end of grain harvest in the United States also means that there are more opportunities for DDGS merchandisers to seek out favorable freight rates for their clients.
Ethanol Comments: Last week, U.S. ethanol production increased to a new record daily average production rate of 988,000 barrels per day (bpd). In turn, the total U.S. ethanol stocks increased from 17.3 million barrels to 17.8 million barrels. That is a notable weekly increase but present U.S. ethanol stocks are no more than 15 percent above the year ago stocks level of 15.4 million barrels.
Exports of ethanol throughout the past year have acted as an excellent relief valve and kept U.S. stocks at manageable levels. Some ethanol market participants have recently become concerned that sharp declines in the price of crude oil could eliminate the export demand. However, multiple foreign nations have mandates in place to consume some level of ethanol and the United States is likely to remain a primary supply source because of recent declines in Brazilian ethanol production.
Earlier in the Brazilian sugar processing season, which began in April, there was an increase in sugar production but there has been a premature end to processing for many mills due to a worsening drought in the Sao Paulo production region. The Dow Jones Newswire has noted that the Brazilian Sugarcane Industry Association reported that processing in the center-south portion of this region declined by 40 percent from late November. Such declines will reduce Brazilian ethanol production and any potential exports. Of course, such a reduction cannot fully offset the full influence of increasing costs for corn and reducing crude oil prices.
The differential between the cost of corn and the return for the co-products of ethanol and DDGS are now below week ago and year ago levels. The differentials in the various regions are as follows for the week ending Friday, December 12, 2014.
- Illinois differential is $3.33 per bushel in comparison to $3.92 the prior week and $4.50 a year ago.
- Iowa differential is $3.02 per bushel in comparison to $3.58 the prior week and $4.25 a year ago.
- Nebraska differential is $3.11 per bushel in comparison to $3.71 the prior week and $3.87 a year ago.
- South Dakota differential is $3.11 per bushel in comparison to $3.83 the prior week and $4.34 a year ago.