Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: Strong basis and high logistical rates limited the decline in domestic DDGS prices sent by barge to New Orleans, but overall domestic prices averaged down more than $10/MTfor the week ending Friday, July 25, 2014. There was even a slightly larger decline of $13/ MT in the average price of containerized DDGS for export. Such declines are presently happening because production facilities have incentive to produce ethanol but only so much storage to house DDGS. Normally buyers have been anxious to secure their share of DDGS as soon as production occurs, but buying has temporarily slowed as there seems to be a common interest in catching the bottom of prices. DDGS merchandisers are finding this development to be frustrating.
While many buyers continue to wait, there seems to suddenly be growing interest from buyers in Canada, and it will be interesting to see if they are soon followed by Mexican buyers. The size of any potential increase in North American demand will be influenced by changes in logistical rates. Rail and truck rates have increased in anticipation of a bumper grain harvest. However, those increases may be a little premature. If so, then logistical rates could back off and enable the local North American demand for DDGS to increase.
In the meantime, there is some pressure on DDGS merchandisers to move product and substantial declines in price are being offered for containerized rates to select Asian destinations. For example, the price declined by more than $15/MT this past week to the Philippines, Indonesia, Malaysia and Vietnam. Similar price declines may also be likely for Japanese buyers.
Ethanol Comments: The need for exports to act as a relief valve for any excess ethanol production means that near-term ethanol prices will be heavily influenced by changes in the price of crude oil. Higher prices for petroleum derived gasoline will generate greater interest in less expensive ethanol. A substantial increase in the price of gasoline would like open the value of U.S. ethanol exports. Despite multiple potential threats to global crude oil production, the current price action of crude oil is rather sedate.
Recall how crude oil prices increased from $20 a barrel in early 2002 to more than $147 dollars a barrel in July of 2008. Then the Financial Collapse happened and prices fell back to $33 a barrel by January of 2009. After that, prices then began to work back upward to current price levels of just over $100 a barrel. Present global uncertainties may keep crude oil in an upward sloping channel with lows above $90 and highs toward $125 if the market gets spooked. Considering present conditions, it is likely to be at least several more months before growing production is able to press crude oil prices further downward.
U.S. ethanol stocks were unchanged in weekly data at 17.9 million barrels. This is now only about 4 percent more than the year ago stocks level of 17.3 million barrels. The fact that the ratio between the year ago and current stocks levels continues to narrow while production is up indicates that there is a flow of ethanol exports. Ethanol production averaged 959,000 barrels per day (bpd) for the week ending July 18. This was above the prior week’s level of 943,000 bpd and more than 12 percent above the year ago level of 853,000 bpd.
There continues to be improvement in the differential between the cost of corn and the co-products at ethanol facilities across the Corn-Belt. The differentials are the following for week-ending Friday, July 18, 2014:
- Illinois differential is $3.51 per bushel in comparison to $3.49 the prior week and $1.97 a year ago.
- Iowa differential is $3.32 per bushel in comparison to $3.26 the prior week and $2.02 a year ago.
- Nebraska differential is $3.22 per bushel in comparison to $3.19 the prior week and $1.66 a year ago.
- South Dakota differential is $3.67 per bushel in comparison to $3.59 the prior week and $2.24 a year ago.