Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: Corn futures contracts bounced this week after being unable to close below the prior contract lows. As corn contracts bounced back, U.S. domestic DDGS prices increased on average by about $4/MT and the rate for bulk DDGS to the Gulf of Mexico also increased by about $7/MT. Prices being offered to domestic and bulk rate buyers of DDGS are unchanged out through August and September. In contrast, containerized buyers are being offered rates about $4/MT lower in August and September if they are willing to contract into that time period.
DDGS merchandisers seem to be offering their best pricing opportunities to clients who have reputations for dependability. It is more difficult for merchandiser to offer the same opportunities to clients who purchase exclusively in the spot market or those clients who may seek to back out of established pricing agreements. Of course, DDGS merchandisers are willing to work together with customers when periods of difficulty arise, but they will seek alternative clientele if the inability to meet agreements becomes habitual.
Pricing relationships between DDGS merchandisers and buyers are expected to become increasingly important once there are indications that a bottom has been established in Chicago corn futures prices. There is a little more than one more week before USDA releases important data about the current crop that will help determine if there is more downside in corn contracts or if a likely bottom has already been established. DDGS merchandisers are anxiously watching marketing developments and seem determined to keep their clients informed as conditions change.
Ethanol Comments: Ethanol production rates declined last week and could continue to decline in the near-term if producer margins continue to narrow and total stocks maintain current levels. Total U.S. ethanol stocks increased from 20.2 million barrels the prior week to 20.7 million barrels for the week ending June 12. During that same week-to-week time period, the average rate of daily ethanol production decreased from 992,000 barrels per day (bpd) the prior week to a lower rate of 980,000 bpd.
The narrowing of producer margins is implied in the consistent decline of the differentials between the spot price of corn and ethanol co-products across the Corn Belt. The differentials for week ending June 19, 2015 are as follows:
- Illinois differential is $1.81 per bushel in comparison to $2.03 the prior week and $3.16 a year ago.
- Iowa differential is $1.73 per bushel in comparison to $1.91 the prior week and $2.72 a year ago.
- Nebraska differential is $1.51 per bushel in comparison to $1.64 the prior week and $2.73 a year ago.
- South Dakota differential is $2.11 per bushel in comparison to $2.25 the prior week and $3.25 a year ago.