Market Perspectives July 12, 2013

Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: Merchandisers report that prices are about $5.00 firmer in most markets. However, some merchandisers have run out of available supplies for July and have limited product for August. Merchandisers are receiving inquiries for the October to December period, but they are hesitant to make offers that far out in an inverted market.

International buying seems to have cooled off in the spot market as there is currently about a $10 per metric ton spread between the bid and the ask. Pricing further into the future is also requiring some active discussion, because the DDGS producers are asking September prices which are equal to August, while the buyers want September prices at October levels. Merchandisers acknowledge that the August to September time period will be a period of active negotiating.

Ethanol Comments: The July WASDE projections were unchanged at 4.9 billion bushels for 2013/14 corn used in ethanol and by-products production. That would be a rebound from this season’s usage of 4.65 billion, but still below the 2011/12 level of 5.011 billion bushels. Increasing ethanol production to levels seen in the 2011/12 season seems dependent upon consumer demand for gasoline during the summer driving season.
Ethanol producers have increased production to 881,000 barrels per day (bpd) for the week ending 5 July. That is a two percent increase from the prior week’s level of 863,000 bpd. This increased production is also above the level for the same week a year ago at 821,000 bpd, and the level two years ago at 872,000 bpd. Adding to this increased domestic production is a return of imports, though at a moderate 25,000 bpd.
The increased ethanol production is contributing to the declining premium that present returns have over year-ago levels. However, that decline is occurring at a rather gradual pace because present ethanol stocks of 15.7 million barrels are still 19.5 percent smaller than the year-ago levels of 19.5 million barrels. The narrowing of returns is implied in the proceeding differentials between processing product values and corn prices:

– Illinois differential increased to $2.31 per bushel, which is up from $2.13 the prior week and above $1.47 last year.
– Iowa differential decreased to $1.95 per bushel, which is down from $2.04 the prior week but above $1.73 last year.
– Nebraska differential increased to $1.98 per bushel, which is just above $1.96 the prior week and moderately above $1.77 last year.
– South Dakota differential decreased to $2.14 per bushel, which is down from $2.36 the prior week but above $1.87 last year.