Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: China has returned as a buyer of DDGS. Chinese buyers have purchased as many as 15 cargoes, each totaling about 50,000 MT, of DDGS from the U.S. Corn Belt for the December through March time period, as reported by Bloomberg News. While China presently has abundant supplies of its own domestic corn, many Chinese livestock producers seem to have a particularly strong appreciation for DDGS.
DDGS merchandisers note that they are cautiously optimistic about the return of Chinese buyers, but many do plan to request that Chinese customers put down at least 20 percent payment for any future purchase. Until trust is fully regained, this may create somewhat of an advantage for foreign buyers from locations such as Mexico, Canada, Taiwan, Thailand, Vietnam, Indonesia and other Asian destinations.
One of the more active DDGS merchandisers noted the fact that just two weeks ago he was selling DDGS to a Vietnamese customer for February shipment at $248/MT. Today, that same DDGS is being sold at $323/MT – $75/MT higher. While it is obvious that the China news has definitely brought a more bullish tone to the market, merchandisers have not forgotten about their established customer base.
U.S. livestock producers also have developed an appreciation for DDGS in their rations. These buyers had been purchasing their DDGS needs on a hand-to-mouth basis because of the assumption that abundant stocks of corn and lack of Chinese buying would cause competition to keep a lid on prices. Many of these buyers also assumed that the recent rebound in corn futures contracts was a temporary phenomenon. This assumption encouraged them to maintain their short-term purchasing strategy. However, U.S. livestock producers have become increasingly interested in knowing their longer-term feed costs because futures prices for U.S. livestock have recently become extremely volatile. The strength of the negotiating power of domestic livestock producers with DDGS merchandisers depends upon if they make longer-term agreements before or after foreign buyers do so.
DDGS prices have been steadily increasing and more buyers are willing to consider longer-term contracts. DDGS prices into the future are structured in the same manner as corn futures contracts, with prices higher this coming spring due to the costs of storage. Longer-term purchasing agreements with buyers enable DDGS merchandisers to fix the cost of their corn and allows them to then help the client shop for better logistical rates.
Ethanol Comments: The industry numbers seem to paint an interesting dynamic as weekly ethanol production continues to set new record levels, while ethanol stocks slowly declined even as the differential between the cost of corn and the return for co-products dropped off sharply. Consider this data: weekly ethanol production edged up to a new record high of 990,000 barrels per day (bpd) while total U.S. ethanol stocks dropped to 17.7 million barrels. This stocks level is below the prior week’s level of 17.8 million barrels and 13 percent above the year-ago level of 15.6 million barrels. (Note, this is a decline from the last reported percent one year ago of 15 percent).
The differential between the cost of corn and the return for the co-products of ethanol and DDGS has substantially dropped off during the week ending Friday, December 19, 2014.
- Illinois differential is $2.47 per bushel, in comparison to $3.33 the prior week and $3.97 a year ago.
- Iowa differential is $2.30 per bushel, in comparison to $3.02 the prior week and $3.40 a year ago.
- Nebraska differential is $2.29 per bushel, in comparison to $3.11 the prior week and $3.08 a year ago.
- South Dakota differential is $2.40 per bushel, in comparison to $3.11 the prior week and $3.60 a year ago.