Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: DDGS pricing this past week was somewhat odd in the fact that some prices to the same destination increased one month and decreased another. This altering price action indicated the significant influence that factors such as storage, unsold inventory and fluctuating logistical rates can have on offers being extended by DDGS merchandisers. Those merchandisers seem to have a strong appreciation for enough time to plan for the future, but the majority of those individuals also seem to realize that abundant notice is not something that DDGS buyers can always offer.
The need for DDGS merchandisers to sometimes plan ahead and estimate future demand without any firm agreements gives them a strong interest in any opportunity to sell sizable amounts of DDGS over prolonged periods of time. Naturally, the best offers are extended to the largest potential customers, and that fact was evident this past week as substantial reductions were presented to Chinese buyers of containerized DDGS. Alternatively, those foreign buyers who consistently purchase in only small amounts usually saw rates rise to varying degrees. However, they may also be able to obtain better rates next week on DDGS purchases if corn futures continue to drift lower for the next week to two.
Ethanol Comments: The decline in crude oil futures contracts this week could be a further indicator that increased summer driving demand has peaked and will slow as Americans travel less and prepare for the return of the school year. If so, margins for ethanol producers are unlikely to improve by way of better demand. Improved margins for ethanol facilities will instead have to come from reduced input costs, primarily corn. That prospect has recently increased, and the price of corn could still have further downside. However, that downside in corn prices is not expected to stretch far into 2015 as discussed in the preceding outlook section.
Relatively thin margins are not incentivizing ethanol producers to increase production, and the average daily rate declined slightly during the week ending July 10, 2015 to 984,000 barrels per day (bpd) from the prior level of 987,000 bpd. Total ethanol stocks did decline during that same period, but only marginally to 19.7 million barrel from the prior level of 19.8 million barrels. A somewhat favorable note is that current stocks are only 10 percent above the year-ago level, but additional declines seem necessary to obtain any rebound in ethanol producer margins.
The differential between the cost of corn and the co-products continued to show weakness in three of the four primary locations across the Corn Belt for the week ending July 17, 2015:
- Illinois differential is $1.53 per bushel, in comparison to $1.62 the prior week and $3.49 a year ago.
- Iowa differential is $1.56 per bushel, in comparison to $1.59 the prior week and $3.26 a year ago.
- Nebraska differential is $1.20 per bushel, in comparison to $1.28 the prior week and $3.19 a year ago.
- South Dakota differential is $1.99 per bushel, in comparison to $1.87 the prior week and $3.59 a year ago.