Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: DDGS prices have stabilized this week with buyers having filled near-term needs and not wanting to chase the market higher. Barge CIF NOLA prices fell only $0.50/MT this week while FOB Gulf prices climbed $1/MT. Part of the reason for the slowdown is reduced Midwest feed demand, driven by warmer weather this week. Oddly, the Chicago market is reported as lagging other markets’ gains, though explanatory reasons are few. Internationally, 40-foot container prices to Vietnam jumped $14/MT this week for March shipment while those to Japan climbed $9/MT. Other Southeast Asia destinations experienced smaller pricing gains, rising $1/MT on average.
Soybean meal futures have retreated this week which is limiting merchandizers’ ability to ask for higher DDGS prices. The downturn in soybean meal prices reduced the per-protein unit advantage of DDGS, though the ethanol co-product retains a $1.60 advantage FOB U.S. Gulf. Additionally, traders are reporting tightness in equipment from the Chinese New Year slowdown that is typical for this time of year. The growth in U.S. ethanol stocks and deteriorating margins will likely increase ethanol plant downtime in the near future, helping reduce DDGS supplies and supporting prices.
Ethanol Comments: Weekly ethanol production fell by 6 million gallons this week (down 0.6 percent to 304 million gallons) as ethanol stocks continued to build. Over 169,000 barrels were added to ethanol stocks, following the seasonal pattern typical for this time of year. Seasonally, ethanol stocks will start to decline in the next 3-4 weeks as driving picks up across the U.S. Gasoline consumption and the stocks drawdown could come earlier this year due to the good weather across much of the U.S.
Ethanol production margins fell this week across all four reference markets, led by Nebraska which saw the steepest declines. Across the U.S., margins were $0.15 per bushel weaker this week but are still above year-ago levels by $0.14. Interesting patterns are starting to emerge between the futures-implied and cash ethanol margins. Cash margins are in line with those typical for this time of year and are between 2015 and 2016 levels. Futures-implied margins, however, are significantly higher than what they were in February, 2016. The difference could be indicative of better times ahead for ethanol producers or simply indicate arbitrage opportunities exist for cash and futures traders. DDGS prices have been strengthening in recent weeks and could help improve production margins going forward.
- Illinois differential is $1.41 per bushel, in comparison to $1.58 the prior week and $1.28 a year ago.
- Iowa differential is $1.35 per bushel, in comparison to $1.47 the prior week and $1.23 a year ago.
- Nebraska differential is $1.58 per bushel, in comparison to $1.82 the prior week and $1.35 a year ago.
- South Dakota differential is $1.88 per bushel, in comparison to $1.96 the prior week and $1.81 a year ago.
Ethanol producers received some good news on the political front this week when President Trump sent a letter to the National Ethanol Conference in San Diego pledging his support for the RFS. The letter noted the administration values the contribution of renewable fuels to the economy and the nation’s fuel independence. The letter came one day before the EPA closed public comments on what entities should be responsible for adhering to the RFS.