Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: Foreign buyers of DDGS should have sufficient supplies of DDGS due to the current favorable margins of U.S. ethanol producers, a topic that is discussed in the ethanol section of this week’s report. However, it is also noted in the Outlook section that next week’s WASDE report (published by USDA) could influence futures prices. The prospects seem better for a limited bounce higher in corn prices rather than a continued sell-off.
Logistical costs are once again a topic that DDGS merchandisers have brought up for discussion. Ethanol facilities are finding it easier to secure their corn needs as harvest winds down and trucks become more available, though containers are starting to become more difficult to procure. In addition to General Rate Increases (GRI’s) charged by international transportation companies, DDGS shippers are also having to pay more to find a container line that has the necessary equipment – especially in Chicago. The reason for this is because shipping lines have engaged their winter deployment strings which results in an overall reduction in capacity during the slack season. Consequently, any reduction in DDGS price could be offset by an increase in logistical rates. The most advantageous strategy in present market conditions seems to be for the buyer to work in conjunction with the merchandiser in arranging long-term volume in order to obtain more favorable container rates from logistical companies.
Ethanol Comments: Strong domestic and export demand is implied in the inverted ethanol prices and limited stock levels. Data about the rate of U.S. ethanol exports continues to lag behind because it is not reported in the weekly energy market data produced by the Energy Information Administration. Instead, ethanol exports data is reported by the U.S. Census Department and has a significant lag.
The combination of export and domestic demand for ethanol seems impressive because production continues at relatively high levels and stocks are not rebuilding. U.S. ethanol production totaled 913,000 barrels per day (bpd) for the week ending November 29. That was a modest decline from the prior week’s production level of 927,000 bpd but 9.4 percent above the year-ago production level of 835,000 bpd. Yet, the total U.S. ethanol stocks of 15.1 million barrels were 21.8 percent below the year ago stocks level of 19.3 million barrels. Further evidence of strong demand is the fact that the differentials between corn and the co-products values are more than double the year-ago levels cross the Corn Belt:
– Illinois differential is $4.81 per bushel in comparison to $4.62 the prior week and $1.65 a year ago.
– Iowa differential is $4.32 per bushel in comparison to $4.28 the prior week and $1.18 a year ago.
– Nebraska differential is $3.80 per bushel in comparison to $4.01 the prior week and $1.62 a year ago.
– South Dakota differential is $4.48 per bushel in comparison to $4.49 the prior week and $1.46 a year ago.