Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: Last week the point was made in this commentary section that further declines in corn futures could result in lower DDGS offers this week; that occurrence has indeed taken place. The most sizable price declines were approximately $10/MT for bulk DDGS being shipped by barge to the Gulf of Mexico or by rail to the Pacific Northwest of the United States. South Korean buyers were offered attractive $7-9/MT rate reductions for DDGS purchases in September and October. Vietnamese and Thai buyers were offered $4-5/MT rate reductions for that same time-period, and $1-3/MT reductions were offered for containerized rates to other destinations.
DDGS merchandisers indicate that the amount of total volume purchased is a major component in their ability to offer better pricing terms. There seems to be strong interest among merchandisers to take advantage of the current setback in corn futures contracts by working with DDGS buyers; a general consensus among the merchandiser is that favorable U.S. corn yields are already expected and any sort of disappointment could shock traders when the data is released on August 12, 2015. The result is that the vast majority of merchandisers have strong interest in discussing possible pricing strategies with DDGS buyers during the next week and a half.
Ethanol Comments: The national average retail price of regular gasoline declined by about 6 cents to $2.75 per gallon on July 27, 2015. Such weakness could be somewhat concerning for ethanol producers, however, the fact that this price is 79 cents below the year-ago level should be incentive for good seasonal demand. Furthermore, while crude oil stocks are up substantially total U.S. gasoline stocks are below year-ago levels. Steady gasoline production should result in stable ethanol consumption.
The difference between total U.S. ethanol stocks and the year-ago level has fallen to 5.7 percent. The reason for this change may be partly because of increases in year-ago stocks rather than increases in current stocks, but it is still a favorable development because it implies that additional downward pressure on ethanol price is limited. That fact is important to ethanol producers because their present tighter margins are primarily the result of year over year reductions in returns from ethanol rather than DDGS. Speaking of the difference between the co-products (ethanol & DDGS) and corn, the differential is the following for week ending July 31, 2015:
- Illinois differential is $1.80 per bushel in comparison to $1.61 the prior week and $3.42 a year ago.
- Iowa differential is $1.69 per bushel in comparison to $1.46 the prior week and $3.26 a year ago.
- Nebraska differential is $1.38 per bushel in comparison to $1.19 the prior week and $3.12 a year ago.
- South Dakota differential is $2.15 per bushel in comparison to $1.90 the prior week and $3.68 a year ago.