Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: Bulk prices for DDGS improved this past week as the barge rate for CIF New Orleans declined by about $15 and the FOB vessel rate at the Gulf was down about $9/MT. It was reported that at least one Panamax vessel of DDGS was sold for $264/MT for June shipment (loaded at NOLA). Presently, the bulk/river bids are more attractive than most container rates, but this past week there was a sizable decline in the rate for containerized DDGS to the Philippines (Manila). Consequently, it seems reasonable to assume that container rates to other Asian destinations may weaken modestly in the next week or two, as long as corn futures contracts remain near present levels.
Different DDGS merchandisers are consistently reporting that bids for containerized DDGS are below their offers. Merchandisers do not seem anxious, especially those who already have their business covered through March. Those merchandisers may be more focused on executing their contracts rather than making new sales, particularly in the front month of January. However, the price of soymeal has gotten cheaper in the Midwest region of the United States and by the end of this week that development seems to have put some pressure on domestic DDGS prices (FOB the ethanol plant).
There was a lot of back and forth pricing discussion this past week with limited activity. The slight easing of domestic values at the end of this week may be a catalyst that facilitates increased trading next week.
Ethanol Comments: Returns for ethanol producers during 2015 will be primarily dependent upon the price of corn and the price of gasoline. The previous Outlook section of this report discusses reasons why the price of corn seems to have a limited downside during the first half of 2015. As a result, the outlook for the price of gasoline during that time period will be of particular importance to U.S. ethanol producers.
The recent sharp decrease in U.S. gasoline prices has resulted in a substantial rebound in the average number of miles driven. Seasonally, the number of miles increases going into the summer and that increase is likely to be larger-than-normal in the first half of 2015. The prospects for growing demand should stabilize gasoline prices, and such an occurrence appears to already be in development. The price of gasoline could plateau for a limited time before starting to rebound somewhat, but resumption of the recent downtrend seems unlikely.
Ethanol stocks of 20.4 million barrels for the week ending January 16 were only slightly larger than the prior week’s level of 20.2 million barrels. Adding further comfort was the fact that the percentage of total ethanol stocks in relation to year ago fell from 25.8 percent the prior week back to 19.8 percent. This occurred as average daily production of 979,000 barrels per day (bpd) remained basically the same as the prior week’s production level of 978,000 bpd. Also reassuring is the fact that the differential between the cost of corn and the return for the co-products of ethanol and DDGS improved on average across the Corn Belt for the week ending Friday, January 23, 2015:
- Illinois differential is $1.63 per bushel, in comparison to $1.57 the prior week and $3.61 a year ago.
- Iowa differential is $1.32 per bushel, in comparison to $1.29 the prior week and $2.64 a year ago.
- Nebraska differential is $1.26 per bushel, in comparison to $1.22 the prior week and $2.73 a year ago.
- South Dakota differential is $1.60 per bushel, in comparison to $1.60 the prior week and $2.95 a year ago.