Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: It was noted in this section last week that August-September will be a period of active negotiating , which is proving to be true as September DDGS prices are all over the board. It makes sense to many buyers that September prices should be discount to August prices by as much as $15-20/MT. Merchandisers reply by pointing at the expensive cash corn prices, with positive basis as high as $2.25 per bushel in some locations, and the fact that some of them are already out of available DDGS supplies for August shipment.
A number of buyers apparently had the foresight to anticipate uncertain market conditions, and they aggressively bought for August shipments specifically to pile up inventory in order to skip September shipment and start buying again in October. Other buyers have chosen to remain hand-to-mouth for the next few months. It will be interesting to see which tactic works best. As noted in the prior Outlook section of this report, near-term corn prices are entirely dependent upon weather conditions for the next few weeks. DDGS merchandisers would like to see improved weather conditions drive prices lower.
Certain experienced buyers are working with DDGS merchandisers to discuss various “what-if” scenarios for pricing their needs as far out as March 2014. In the meantime, the spot DDGS market is reported to be steady, with Chicago buying still strong for export demand. One merchandiser noted that the DDGS values he is seeing net an ethanol plant are about 100 percent the price of corn.
Ethanol Comments: Ethanol stocks rebounded 5.5 percent last week to 16.6 million barrels. Total ethanol stocks remain below the year ago level of 19.6 million barrels, but the gap is narrowing. Weekly ethanol production of 876,000 barrels per day (bpd) is slightly lower than the prior week’s level of 881,000 bpd, but above the year ago level of 802,000 bpd and also the prior year’s level of 873,000 bpd. Adding to the increase in stocks are higher ethanol imports.
This section has commented in the past about the prospects of increased ethanol imports during the summer, and it now seems that those expectations are becoming realities, as ethanol imports doubled to an average of 50,000 bpd for the week ending July 12. This import level is also above the same week for the prior two years. It is possible to absorb such imports with present stock levels, but it is less than desirable for ethanol imports to increase while the summer driving season peaks.
The weaker Brazilian currency and the fact that more sugar is going into ethanol are likely to keep a certain amount of ethanol imports flowing into the United States. However, the level of those imports may be restrained by Brazil increasing its own domestic consumption of ethanol in gasoline from 20- to- 25 percent. If so, margins for U.S. corn ethanol producers could even improve despite slightly larger stocks and increased imports, as is implied this week by USDA’s reported differential between corn prices and the value of co-products:
– Illinois differential increased to $2.43 per bushel, which is up from $2.31 the prior week and above $1.79 for this same week a year ago.
– Iowa differential increased to $2.02 per bushel, which is up from $1.95 the prior week and above $1.85 for this same week a year ago.
– Nebraska differential increased to $2.01 per bushel, which is up from $1.98 the prior week and above $1.85 for this same week a year ago.
– Illinois differential increased to $2.24 per bushel, which is up from $2.14 the prior week and above $2.00 for this same week a year ago.