Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: International buyers of bulk DDGS through the Gulf of Mexico were presented with a favorable opportunity this past week as barge rates for CIF New Orleans declined by $6.00/MT for March and FOB Vessel rates dropped $8.00/MT for March. Each of those rates also declined by $3.00/MT for April. Containerized DDGS rates to various Asian destinations similarly averaged about $3.00/MT lower for April. Alternatively, domestic rail rates for DDGS to California and the Pacific Northwest during the month of April were about $2.00/MT higher. Those higher rates are presumably the result of recent logistical issues at ports along the U.S. West Coast.
In relation to those West Coast logistical issues, there is some good news to pass along: a new five-year contract was reached this morning between the International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA). The port congestion that has been impacting both inbound and outbound cargoes should start to come to a close. However, market participants estimate that correcting the entire backlog could take up 12 weeks before all activities are normalized.
An opportunity to more quickly correct that backlog may exist because of the present lull in logistical flow due to the Chinese New Year celebrations. The vast majority of Asia is presently enjoying the holiday, except perhaps in Japan. This week there was a sale of 400 MT of DDGS to Nagoya, Japan at $314/MT for MAR shipment.
Ethanol Comments: USDA published their long-run projections this week at the Outlook Forum. It should be noted that USDA does not present these projections as a forecast, but rather one possible scenario if select conditions remain unchanged into the future. In other word, USDA is presenting a useful tool for “what-if” analysis, but they are not attempting to define future conditions. Making that clarification, it is interesting to note that USDA’s projection implies that U.S. corn-based ethanol production will become stationary during the next decade under present circumstances; as the amount of U.S. corn projected to be utilized for ethanol production is 5.2 billion bushels in 2015/16 and by 2024/25 the amount of corn projected for use in ethanol production is still 5.2 billion bushels. On average, about 35 percent of U.S. corn is expected to go into ethanol production during the next decade. One implication that could be derived from such USDA data is that the greatest advantage will go to the most efficient ethanol producers.
Total U.S. ethanol stocks remained unchanged at 21.1 million barrels for the week ending February 13. The average daily product of 964,000 barrels per day (bpd) was virtually the same as the prior week’s level of 961,000 bpd. This data seems to imply that the current consumption rate of ethanol is steady. That makes sense because the recent decline in the price of gasoline should encourage slightly more consumption than a year ago, particularly as the weather improves this spring.
Increased gasoline consumption is desirable because the current ethanol stocks level is 22.6 percent above the year-ago level. Increased consumption could enable the differential between the cost of corn and the return for the co-products of ethanol and DDGS to improve; which is presently the following at select locations across the U.S. Corn Belt for week ending Friday, February 20, 2015:
- Illinois differential is $1.73 per bushel in comparison to $1.78 the prior week and $4.54 a year ago.
- Iowa differential is $1.43 per bushel in comparison to $1.46 the prior week and $2.86 a year ago.
- Nebraska differential is $1.37 per bushel in comparison to $1.41 the prior week and $2.78 a year ago.
- South Dakota differential is $1.58 per bushel in comparison to $1.67 the prior week and $3.09 a year ago.