Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: A price break of $3-5/MT is reported to have started in the rail market. However, some of the DDGS producers were already asking higher prices for rail-loaded product than truck loaded product because it was taking longer than expected for some of the rail cars to return to plants for reloading. The key point here is that the domestic truck rates may not have quite as much downside room as the rail rates at the DDGS production facilities, where they are already being priced lower.
Naturally, domestic DDGS buyers are requesting lower prices as they consider present uncertainties regarding the Chinese market, recent increases in ethanol production and price weakness in corn futures. However, much of Chinese-related uncertainty may already be built into the present futures prices and additional downside in futures contracts may be limited, particularly if large speculators decide to buy back some of their large short positions before the end of the calendar year.
In relation to a buying strategy, one merchandiser pointed out the interesting fact that the nearby (December) DDGS prices are as much as $15 higher than January-forward prices. Therefore, purchasing a longer time period could decrease the overall cost of DDGS since the nearby product would be discounted with the deferred shipments.
The price of DDGS are generally still at a premium to the flat-price of corn, but that is partly because DDGS are increasingly being priced into feed rations as a protein source – a source that is competitive against alternative sources of protein from soybean, canola or cottonseed meal.
Ethanol Comments: The December WASDE report was not bearish for feed grains, however, an end of week sell-off did occur in corn futures because of reports that 10 U.S. senators were introducing a bill to end the corn-based portion of the Renewable Fuel Standard (RFS). This bill has little prospect of success because Senator Barbara Boxer (D-CA),chairwoman of the Senate Environment and Public Works Committee, has noted that she holds the gavel and will not allow a reversal in current RFS policy. Consequently, a sell-off in corn futures is simply an opportunity for ethanol facilities to extend their future hedge coverage.
USDA increased the estimated amount of corn used in ethanol and by-product production in the current 2013/14 crop year by 50 million bushels, from 4,900 to 4,950 million bushels. Demand for ethanol remains sufficiently strong so that even though the most recent production of 944,000 barrels per day (bpd) is 14.6 percent above the year ago level, the total U.S. ethanol stocks level of 15.4 million barrels is still 22.9 percent below prior-year’s level of 20 million barrels.
Producer margins continue to remain healthy as implied by the differentials between corn and the co-products values across the Corn Belt:
– Illinois differential is $4.50 per bushel in comparison to $4.81 the prior week and $1.71 a year ago.
– Iowa differential is $4.25 per bushel in comparison to $4.32 the prior week and $1.31 a year ago.
– Nebraska differential is $3.87 per bushel in comparison to $3.80 the prior week and $1.60 a year ago.
– South Dakota’s data was unavailable this week.