Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: The preceding Outlook section discusses some reasons that corn prices have worked higher during the past week, and that is one reason why DDGS prices have increased from $5.00 to $10.00 higher per metric ton. An additional reason for said price increase is that recent winter storms moving across the United States have produced extremely cold temperatures and deep snow. That cold weather has driven up the cost of natural gas, which is used to dry DDGS. Some of the domestic end-users of DDGS are attempting to avoid the impact of higher natural gas prices by purchasing more of the product wet. This strategy can work to some degree for domestic buyers, depending on how cold the weather gets. However, the increased weight of wet product means that it is only feasible to market to local consumers within a limited radius; otherwise, ethanol facilities need to dry the DDGS product.
Foreign buying has slowed somewhat this week due to the Chinese New Year holiday, but DDGS merchandisers noted that inquiries are again starting to pick up from Asian buyers and are likely to return in greater force next week. Of course, many of those foreign buyers will desire to ship their purchased product by container. Foreign buyers may want to work with the DDGS merchandisers to allow sufficient time to acquire containers and arrange logistics for the following reasons:
1. There is a seasonal tendency for containers and vessel space to tighten, but that shortage has become more pronounced this year due to the large export volumes.
2. This year’s severe winter weather has delayed truck traffic and even caused some highway closures. As well, the extremely cold temperatures and dangerous wind chills have slowed container loading activities.
3. Weather is also one factor that is contributing to a shortage of ethanol rail cars. The limited supply is causing some of the ethanol plants to slow down their production, thus resulting in reduced DDGS production.
Ethanol Comments: In relation to ethanol policy, the Environmental Protection Agency (EPA) recently noted that any further reductions in the annual blending requirements are presently unnecessary and would not support the objectives of Congress as laid out in the original 2007 Energy Independence and Security Act. While the agency did agree to reduce the cellulosic ethanol requirements, it would not reduce the requirement to blend 16.55 billion gallons into the fuel supply of the United States. EPA estimates that this mandate can be met with corn-based ethanol, bio-based diesel and the petroleum industry’s own stockpile of renewable identification numbers (RINs).
A limited decline in weekly U.S. ethanol production was reported by the Energy Information Agency (EIA) this past week at 895,000 barrels per day (bpd), down slightly from an average rate of 900,000 bpd the prior week. There was also a modest decline in total U.S. ethanol stocks to 16.7 million barrels. This is down from 16.9 million barrels the prior week, a substantial 16.7 percent from the year-ago level of 20.1 million barrels and 20.5 percent from the 21.2 million barrel level two years ago.
Additionally, there was a story in Bloomberg news this week that said about 3.3 million gallons of U.S. corn-based ethanol had been exported to Brazil. Exports to Brazil imply that ethanol imports into the United States are unlikely anytime soon. It has been approximately 20 weeks since any ethanol was imported into the United States. Such positive news stories are pointed out to reemphasize the fact that the U.S. ethanol industry is healthy and it is expected to remain in this condition so long as corn prices continue at present levels.
Differences between corn and co-product processing values across the Corn Belt are not producer margins, but they can be used as indicators of changing conditions. The differentials for locations across the Corn Belt are as follows:
– Illinois differential is $3.43 per bushel, in comparison to $3.49 the prior week and $1.74 a year ago.
– Iowa differential is $2.60 per bushel, in comparison to $2.60 the prior week and $1.55 a year ago.
– Nebraska differential is $2.60 per bushel, in comparison to $2.48 the prior week and $1.91 a year ago.
– South Dakota differential is $2.75 per bushel, in comparison to $2.72 the prior week and $1.73 a year ago.