Distillers Dried Grains with Solubles (DDGS)
DDGS Comments:DDGS market participants are likely to have interest in the long-range data that was released at USDA’s Outlook Conference this week, as there is some indication that corn-based ethanol could see growing international demand. Accepting the economic and normal growing conditions as defined by USDA presents a case where the price of crude oil could increase to $150 per barrel, while the cost of corn remains fairly consistent. The evolution of such a situation could increase international demand for U.S. ethanol. Of course, increased ethanol production would also mean increased DDGS production.
The ethanol section of this report notes that it would be easiest for ethanol producers to satisfy the consistent demand of foreign end-users with buying programs that extend beyond sporadic purchases in the present spot market, and that those buyers who have such programs are likely to have some advantage over competition. That fact seems equally true for buyers of DDGS.
DDGS market participants may also note likely that the ethanol section reports that the differential between corn and co-products implies that profit margins for ethanol producers are presently better this year than they were at the same time last year. This fact is presumably of interest because DDGS buyers recognize that DDGS prices are currently well below levels that existed during this same time period a year ago. Such facts make it increasingly evident that there could be potential win-win pricing opportunities for both the DDGS buyer and the DDGS merchandiser should long-term market conditions evolve in a manner as projected by USDA in their Outlook Conference.
Ethanol Comments: Ethanol producers will be interested in USDA’s 10-year projections that global crude oil prices will increase from an estimated $101 per barrel in 2014 to $150 per barrel by 2023. This increase in crude oil is expected to be faster than the general inflation rate and is primarily due to global economic growth. Such a forecast would presumably increase the popularity of U.S. corn based ethanol in world energy markets, especially if conditions remain normal for corn production and USDA projections are correct for average annual U.S. corn prices to remain below $4.50 per bushel into 2023. Such data implies that the prospects of U.S. ethanol exports could be promising throughout the next decade.
It is entirely possible that highly populated regions of other nations could obtain the same benefits as similar areas of the U.S. that mandated some permanent proportional mix of ethanol into their own domestic fuel consumption. Such consumption is entirely feasible because U.S. ethanol facilities have the means to satisfy demands beyond the domestic needs of the United States. The foreign ethanol buyers who develop such a program beyond sporadic buying in the present spot market are likely to have an advantage over other foreign competition.
Growing ethanol exports is one reason that total U.S. ethanol stocks remain at current levels. Ethanol stocks as of 14 February are 17.2 million barrels. This amount is basically unchanged from the prior-week’s level of 17.1 million barrels and 11.6 percent below the year ago level of 19.5 million barrels. Weekly average daily production of 903,000 barrels per day (bpd) is also about the same as the prior-week’s level of 902,000 bpd. Near-term ethanol production seems likely to remain at these levels or better because the differential between corn and co-product processing values continues to improve across the Corn Belt. The differentials for the week ending February 21 are the following:
– Illinois differential is $4.54 per bushel in comparison to $4.40 the prior week and $1.72 a year ago.
– Iowa differential is $2.86 per bushel in comparison to $2.74 the prior week and $1.64 a year ago.
– Nebraska differential is $2.78 per bushel in comparison to $2.66 the prior week and $1.86 a year ago.
– South Dakota differential is $3.09 per bushel in comparison to $2.89 the prior week and $1.90 a year ago.