Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: The price of containerized DDGS prices to Asian markets increased by approximately $5/MT for the month of March, but was slightly lower for April and May. This pricing dynamic seems to imply that DDGS supplies in the spot market are becoming tighter as ethanol facilities momentarily slow down their production rates. (Please see related discussion in the ethanol section).
Domestic buyers would like to secure more DDGS at favorable prices because the basis for corn in the Central United States remains firm. One reason behind this situation is because many U.S. farmers are confident that feed grain prices will remain firm going into USDA’s Prospective Plantings Report that will be published on March 31.
Domestic buyers of DDGS have recently been able to purchase all of the DDGS they needed in the spot market since the majority of Asian buyers were temporarily celebrating Chinese New Year. The need for domestic buyers to compete against returning Asian buyers seems to be a second reason that containerized DDGS prices have increased for the month of March.
Ethanol Comments: Ethanol stocks are presently increasing back up to levels where they were in the middle of 2012, but a return to levels of two years ago is not ominous by itself. The fact that total U.S. ethanol stocks continued to increase to 21.6 million barrels would be more threatening if it occurred in the fall rather than for week ending February 20.
Long-term storage of ethanol stocks can be expensive and would likely apply additional pressure to prices, except for the fact that the current market is about to enter a period of increasing demand. Therefore, short-term storage of sizable stocks is not expected to exert excessive pressure on present ethanol prices.
Ethanol producers are currently taking the appropriate actions by reducing the rate of average daily production down to 947,000 barrels per day (bpd). That is a one week decline in the daily rate by 18,000 bpd. More than likely, such declines will continue, which will help guarantee that increasing ethanol consumption this spring will be taken from stocks.
The differential between the cost of corn and the return for the co-products of ethanol gives no cause for alarm. The differential between the spot value of co-products and ethanol is the following across the Corn Belt for week ending Friday, February 27, 2015:
Illinois differential is $1.78 per bushel in comparison to $1.73 the prior week and $5.36 a year ago.
Iowa differential is $1.41 per bushel in comparison to $1.43 the prior week and $3.27 a year ago.
Nebraska differential is $1.28 per bushel in comparison to $1.37 the prior week and $3.05 a year ago.
South Dakota differential is $1.67 per bushel in comparison to $1.58 the prior week and $3.69 a year ago.