Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: Many Asian buyers were out of the market this week because of May Day celebrations, though some have noticed that spot bulk rates for DDGS declined by about $17/MT. Near-term bulk rates for domestic buyers in the South declined by more than $13/MT and by about $10/MT for rail-delivered DDGS to the U.S. West Coast. Near-term rates for containerized DDGS declined this week by an additional $5/MT and by about $7-9/MT for June and July. Domestic DDGS rates for June and July are also averaging about $1-3/MT lower.
DDGS merchandisers are being forced to reduce price offers to Asian buyers due to competition from falling soymeal prices from South America and weaker corn prices in the U.S. Corn Belt. DDGS prices are being adjusted lower so as not to be priced out of feeding rations. The majority of DDGS merchandisers seem able and willing to price competitively in order to maintain market share.
Certain end-users of DDGS tend to have a price level in mind that will enable them to lock in a favorable profit margin at their feeding operations. Others seemingly desire to purchase at the absolute lowest price for the season, though successfully accomplishing that feat may be particularly difficult this year because current price weakness is occurring so early and may not last.
Favorable weather for planting encouraged corn futures contracts to decline sharply this past week, but the planting pace is still not yet 50 percent complete and rains are expected to return to the Corn Belt next week. The majority of DDGS merchandisers seem to recognize that corn futures contracts could easily rebound above the lows of this week. That fact makes it difficult for them to offer even lower prices one or two month out unless there is a formal agreement and some sort of down payment. Many buyers seem to understand this fact and may return in greater force next week, particularly if Chicago corn futures contracts firm up.
Ethanol Comments: U.S. ethanol imports fell back to zero for the week-ending March 24, after momentarily bouncing to an average daily rate of 53,000 barrels per day (bpd) the prior week. This is favorable news for U.S. ethanol producers because the United States overtook Brazil in 2014 as the world’s largest ethanol exporter. Six percent of U.S. ethanol was exported in 2014 and it was valued at more than $2 billion dollars.
Total U.S. ethanol stocks declined to 20.8 million barrels from the prior-week’s level of 21.3 million barrels. This decline is partly due to increased usage and a reduced average daily production rate of 921,000 bpd, which is below the prior week’s average daily rate of 930,000 bpd.
Declining stocks and weaker corn prices enabled the differential to improve between the spot market price for corn and the prices for ethanol and DDGS. However, the differential may weaken if DDGS prices continue the sharp declines of the past two weeks (Please see DDGS discussion). The differential between the price of corn and the spot price of corn and co-products improved in the following in primary regions of the Corn Belt for the week ending May 1, 2015:
- Illinois differential is $2.52 per bushel in comparison to $2.40 the prior week and $3.67 a year ago.
- Iowa differential is $2.23 per bushel in comparison to $2.11 the prior week and $3.28 a year ago.
- Nebraska differential is $2.11 per bushel in comparison to $1.95 the prior week and $3.07 a year ago.
- South Dakota differential is $2.49 per bushel in comparison to $2.31 the prior week and $3.69 a year ago.