Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: Reports of buying activity were mixed as the week started off generally slow. However, by mid-week the DDGS buyers who had been patiently waiting on the sidelines increasingly entered the market. Merchandisers initially had ample inventory for all takers, but by the end of the week prices of DDGS shipped by barge had rebounded a couple dollars above the prior week’s level. However, some buyers were still able to secure even lower prices than the prior week. For example, rail-delivered DDGS to the Pacific Northwest could be purchased for $5-$7/MT below the prior-week’s rate. As well, some substantial rate reductions were offered early in the week to the destinations of Vietnam and Thailand. Reduced rates were also being offered in the more distant months for delivery to Japan.
The availability of rock-bottom buying opportunities varied by location, but the number of opportunities seemed to decline as the week progressed and inventory was increasingly committed to various destinations. Merchandisers reported that as the week progressed there was even a sudden flurry of buying that caused Chicago DDGs prices to jump nearly $15 per U.S. short ton. At the end of the week, there were a number of Southeast Asian buyers who were unsuccessfully seeking to obtain the depressed prices of last week. Those Southeast Asian buyers who purchased in the early part of this week were rather successful in achieving their objectives while it appears that those who waited until the end of this week may have missed the best buying opportunity.
DDGS prices next week will be more heavily influenced by the price action of corn futures contracts because merchandisers now have less excess inventory pressing against them. Corn contracts closed out this week looking fairly strong. As a result, DDGS buyers should keep an eye on how corn contracts start next week.
Ethanol Comments: The fact that there was a decline in total U.S. ethanol stocks of 572,000 barrels while production increased to record levels seems to have quieted some of the recent ominous predictions about ethanol producer returns and production. Gasoline futures are presently holding about a dollar-per-gallon premium over ethanol and this section has noted in the past that exports can act as a relief valve for building U.S. ethanol stocks.
U.S. ethanol production for the week ending June 13 increased to an average daily rate of 972,000 barrels per day (bpd), which was up from the prior week’s average production of 944,000 bpd and about 11.4 percent above the same week a year ago rate of 873,000 bpd. U.S. ethanol imports remain zero. Strong demand is implied in the fact that stocks shrank while production reached a new record.
U.S. corn based ethanol producers are being encouraged by favorable margins to maintain ample production. Naturally, a limited rebound in corn contracts could cause spot margins to tighten up in the next few weeks. The differential between the cost of corn and the value of ethanol and DDGS at processing plants and facilities across the U.S. Corn Belt for the week ending June 20, 2014 are as follows:
- Illinois differential is $3.16 per bushel, in comparison to $3.53 the prior week and $2.20 a year ago.
- Iowa differential is $2.72 per bushel, in comparison to $3.33 the prior week and $2.06 a year ago.
- Nebraska differential is $2.73 per bushel, in comparison to $3.23 the prior week and $1.95 a year ago.
- South Dakota differential is $3.25 per bushel, in comparison to $3.76 the prior week and $2.04 a year ago.