Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: There was a changing flow in buying activity of DDGS this past week. The market started off with strong inquires and there was a substantial amount of trading for the April-June time period. The fact of an approaching General Rate Increase (GRI) in freight costs presumably incentivized buyers with a desire to fix some more prices. However, merchandisers increased their asking prices by mid-week in response to the strong demand, which caused buyers to momentarily back away.
The increasing likelihood of weaker prices in the global soy complex may also have been an additional incentive for DDGS buyers to slow down their purchases. Buyers seem to recognize that a decline in meal prices could momentarily help weigh on corn futures contracts, and that in-turn could translate into better spot market prices for DDGS. Such thinking seems entirely logical. Of course, the development of a perceived opportunity is of limited values if there is only reaction once the event is gone. DDGS buyers can request that merchandisers inform them when specific price objectives are obtainable.
Ethanol Comments: USDA reduced the estimated amount of corn used for ethanol production during the current 2014/15 season by 50 million bushels from 5.25 to 5.20 billion bushels. The primary reason for this adjustment is apparently to harmonize with the recently released data about ethanol production in the Grain Crushing and Co-Products Production report. However, such action could be premature because this assumption of reduced production is not supported by the either the monthly December ethanol production number or the more current weekly ethanol production figures that run through February.
The most current weekly ethanol production figure is an average daily production rate of 944,000 barrels per day (bpd) for the week-ending March 6, 2015. That is actually a 13,000 bpd increase from the prior-week’s level. Total ethanol stocks also declined for the second week by 1.6 percent, to 21.2 million barrels. However, it is acknowledged that further increased consumption is necessary because stocks are a sizable 33.1 percent above the year-ago level of 15.9 million barrels. The need to utilize existing ethanol stocks is expected to keep a cap on ethanol producer margins for the time being. Nevertheless, the differential between the spot price of corn and the co-products of ethanol did improve for the week-ending Friday, March 13:
- Illinois differential is $2.04 per bushel in comparison to $1.97 the prior week and $5.90 a year ago.
- Iowa differential is $1.67 per bushel in comparison to $1.55 the prior week and $3.95 a year ago.
- Nebraska differential is $1.57 per bushel in comparison to $1.41 the prior week and $3.69 a year ago.
- South Dakota differential is $1.88 per bushel in comparison to $1.72 the prior week and $4.03 a year ago.