Distillers Dried Grains with Solubles (DDGS)
DDGS Comments:A number of foreign buyers of DDGS have decided to wait on the sidelines for the prospect of better pricing opportunities as they observe market factors such as the ongoing bird flu situation slowing Asian demand, plenty of cheap local grain causing Mexican demand for DDGS to recently slow, and Canadian demand slowing as ample canola meal competes against imports of DDGS and soybean meal from the United States. However, those foreign buyers may need to wait for at least several more weeks before there is any prospect of lower prices because a number of DDGS merchandisers are struggling to meet a backlog of orders that has occurred because of this season’s severe winter weather in the United States.
The temporary tightness in the DDGS market will improve, but a substantial setback in prices does not seem likely in the next few weeks because the severe winter weather created such logistical delays that some ethanol plants have been forced to reduce production by half, which in turn reduced DDGS production in a similar proportion. One of the more active DDGS merchandisers reports that this situation has placed him in a position where he is currently running 30 to 45 days late on some of his outstanding contracts. Consequently, he has decided not to sell half of his April DDGS production in anticipation that many of his March obligations will roll over into April. Near-term tightness in the DDGS market could be further extended by the fact that a number of ethanol plants need to shut down for routine spring maintenance.
The foreign buyers who previously extended their coverage have the advantage of being able to put their purchases on hold while domestic DDGS buyers, who often have chosen to remain hand-to-mouth, find it necessary to remain consistently active. In the cold and snowy Northeast, the present low DDGS price for fob Buffalo New York is in the $270’s, with prices falling in April to around $ 255-$260 per short ton fob Buffalo. In other domestic locations, a similar $15 reduction in prices seems to be available for the April, May, June period. Alternatively, there is little overseas for that April, May, June period. Rather, foreign buyers are primarily inquiring about the more distant months. All indications are that the extended purchasing strategies of the foreign buyers seems to be working best during this spring of increasing corn and DDGS prices.
Ethanol Comments: The WASDE report on Monday kept the estimated corn use in U.S. ethanol production at a consistent 5 billion bushels. This makes sense as the policy is finalized about whether the maximum blend rate will remain at 10 percent or slightly higher at 15 percent. It presently seems that the maximum blend rate will be 10 percent, which is unlikely to be any disadvantage to a healthy industry with products that are in strong demand.
Strong global demand for U.S. ethanol is implied in a further decline in stocks this week to 15.9 million barrels, which is a significant decline of 4.2 percent below the prior week’s level of 16.6 million barrels. It is also 14.9 percent below the year ago stocks level of 18.7 million barrels. A limited amount of that drop results from a small decline in production to 869,000 barrels per day (bpd), which is down from the prior-week’s level of 894,000 bpd. However, this reduced production level only accounts for a small amount of the 700,000 barrel weekly reduction in ethanol stocks. The end result is that the differential between corn and co-product processing values imply that returns are and will remain strong for ethanol producers across the Corn Belt. Differentials for this week ending March 14, 2014 are as follows:
– Illinois differential is $5.90 per bushel in comparison to $6.08 the prior week and $2.31 a year ago.
– Iowa differential is $3.95 per bushel in comparison to $3.74 the prior week and $1.64 a year ago.
– Nebraska differential is $3.69 per bushel in comparison to $3.47 the prior week and $2.39 a year ago.
– South Dakota differential is $4.03 per bushel in comparison to $3.93 the prior week and $2.25 a year ago.