Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: During this past week the December corn contract rallied back up to price levels that have not been seen since April. This type of price action can place DDGS merchandisers in a bind because when such events happen there seems to be a tendency for customers to request the prices that were being offered before the rally. These requests can be difficult to fill after changes have occurred in market conditions, but the DDGS merchandisers seem determined to figure out ways to use advantages such as logistical discounts for volume to help their customers obtain better prices. Consider the following factors:
Even though there was a significant rally in corn prices during this past week, the average rate being offered for containerized DDGS to various Asian destinations only increased by an average of $1/MT. Buyers in locations such as Taiwan, Malaysia and the Philippines actually had the ability to obtain lower rates during the week, while buyers in Japan and Indonesia were offered rates that were largely unchanged. Domestic buyers, who purchase primarily in the nearby spot market, did see their offers increase on average by about $6/MT; however, such an increase was still limited when considering the sharp rally in corn futures this past week and the current high level of uncertainty before important USDA data is released next week. This uncertainty has caused enough DDGS buyers to make purchases prior to the release of next week’s data that at least one merchandiser reported having over 35 percent of sales already purchased for September. Yet, it is evident that plenty of pricing opportunities still exist because there was a sizable drop this past week in the rate being offered into Alberta, Canada. Finding the best opportunity may just require some shopping around among the different merchandisers.
Ethanol Comments: A sizable decline in total ethanol stocks in tandem with weekly ethanol production occurring at a new record level was a positive development this week. Ethanol stocks declined to 19.8 million barrels for the week ending June 19, in comparison to the prior-week’s level of 20.7 million barrels. The current U.S. ethanol stocks level is also less than 10 percent above the year ago level of 18.2 million barrels. Meanwhile the average daily rate of ethanol production was 994,000 barrels per day (bpd) in comparison to the week ago rate of 980,000 bpd.
Ethanol facilities are generally experiencing strengthening demand for ethanol and lax demand for DDGS. The result is that recent gains for ethanol are largely being offset by lackluster returns from DDGS. However, data for the week-ending June 26, 2015 shows that the declining differential between the price of corn and the co-products are not significant:
- Illinois differential is $1.80 per bushel in comparison to $1.81 the prior week and $2.96 a year ago.
- Iowa differential is $1.70 per bushel in comparison to $1.73 the prior week and $2.83 a year ago.
- Nebraska differential is $1.51 per bushel in comparison to $1.51 the prior week and $2.90 a year ago.
- South Dakota differential is $2.28 per bushel in comparison to $2.11 the prior week and $3.27 a year ago.