Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: During the past week there was a slight increase in the average price of containerized DDGS to Asia as market participants organize their business prior to the Chinese New Year, which begins on February 19. DDGS buying from Asia is expected to slow during the next two weeks because of the holiday celebrations, though some Chinese clients have expressed their interest in securing DDGS purchases through June – particularly if they can get the merchandisers to reduce their offers by an additional $10/MT. However, DDGS merchandisers do not seem anxious to accept those bids while there is congestion at U.S. West Coast ports. Labor issues at those ports are making the shipping period on contracts difficult to guarantee.
DDGS merchandisers presently find it easy to deal with domestic clients, and that presumably is a reason that barge and rail rates to the Gulf of Mexico and New Orleans declined this past week by $2-$4/MT. The price of rail-delivered DDGS into Texas, and potentially into Mexico, did not increase. The average rate for bulk DDGS into California increased by about $3/MT.
Several DDGS merchandisers have expressed the opinion that there is room for domestic buyers to receive more favorable price offers for DDGS, particularly if there is a momentary setback in corn futures contracts. In the meantime, DDGS merchandisers are executing the obligations that they have on their books. Remaining offers for the February to March time period seem limited in number.
Ethanol Comments: The February WASDE seems to imply that USDA has an optimistic opinion about ethanol production prospects through the summer of 2015. The estimate for corn used in ethanol production between now and the end of August was increased by 75 million bushels, from 5,175 to 5,250 million bushels. The justification for this increase is a forecast by the Energy Information Administration (EIA) for higher gasoline consumption due to lower prices.
A rebound in petroleum prices above $70 per barrel could also cause ethanol exports to grow, which could help reduce growing U.S. ethanol stocks. Such a development would be favorable because ethanol stocks have grown sizable in comparison to a year ago. Ethanol stocks were 23.9 percent above a last year for the week ending February 6. Average daily ethanol production during that same time period also increased to a rate of 961,000 barrels per day (bpd), above the prior-week’s level of 948,000 bpd and 6.6 percent above the year-ago average of 902,000 bpd.
Increasing demand could reduce stocks and help ethanol producers maintain stable margins. Please note that the differential between the cost of corn and the return for the co-products of ethanol and DDGS is stable for week ending Friday, February 13, 2015:
- Illinois differential is $1.78 per bushel in comparison to $1.84 the prior week and $4.40 a year ago.
- Iowa differential is $1.46 per bushel in comparison to $1.46 the prior week and $2.74 a year ago.
- Nebraska differential is $1.41 per bushel in comparison to $1.41 the prior week and $2.66 a year ago.
- South Dakota differential is $1.67 per bushel in comparison to $1.66 the prior week and $2.78 a year ago.