Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: Merchandisers report that the DDGS market has slowed now that China is celebrating the Lunar New Year. Some buyers from Southeast Asian regions are purchasing hand-to-mouth in anticipation of further price weakness. Certainly, any build up in DDGS inventory can cause ethanol plants to temporarily reduce DDGS prices in order to encourage movement, but such savings for a buyer can often be eaten up by offsetting costs when logistical arrangements are rushed. This is in part because the availability of empty containers has declined now that the holiday volume to the United States has slowed. Of course, fewer available containers could cause trucking freight to decline, but domestic U.S. truck and rail movement has been temporarily strained by winter weather. It is generally the case that better freight rates can be obtained when there is time to negotiate.
One DDGS merchandiser reported that he was working with Vietnamese buyers this week and they made a purchase. He noted that other Asian buyers are seeking “fire sale” prices because of recently diverted DDGS containers from China, but such product has not lasted long in the market and that is not a viable long-term strategy.
Foreign and domestic buyers are encouraged to read the preceding commentary in the Outlook section which notes that the price of corn futures has leveled off into a trading range and the near-term forecast is for cash basis to strengthen. Current market dynamics seem to be presenting an ideal opportunity for both foreign and domestic buyers to hold discussions with merchandisers about potential strategies to secure DDGS stocks to meet their protein needs into the first half of 2014.
Ethanol Comments: Ethanol producer returns remain consistently well above year-ago levels and this fact is causing the four-week average weekly production of 902,000 barrels per day (bpd) to remain exactly 100,000 bpd above the prior-year’s four-week average of 802,000 bpd. Demand for U.S. ethanol is sufficiently strong that the total U.S. stock of 17 million barrels remains 15.3 percent below the year-ago total stocks level of 20.1 million barrels. Domestic use, exports and lack of imports have all combined to maintain this lower stocks level for an extended period of time, but the gap in stocks between this year and last is destined to narrow.
A primary reason for the present difference between corn and the co-products values is the current low price of corn. A general assumption that is now being held amount corn market particpants is that the future outlook is neutral to bearish if the U.S. corn acreage gets planted on time and weather conditions are non-threatening. Of course, it is the ability to deal with unforeseen circumstances that determines the degree of long-term success.
The differentials between corn and the co-products values for the week ending January 24, 2014 were lower across the Corn-Belt, but all remain well above the year-ago levels:
– Illinois differential is $3.61 per bushel in comparison to $4.31 the prior-week and $1.45 a year ago.
– Iowa differential is $2.64 per bushel in comparison to $2.79 the prior-week and $1.12 a year ago.
– Nebraska differential is $2.73 per bushel in comparison to $2.98 the prior-week and $1.87 a year ago.
– South Dakota differential is $2.95 per bushel in comparison to $3.21 the prior-week and $1.78 a year ago.