Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: While corn futures contracts have recently stabilized, the price of DDGS continued to work lower this past week. However, different logistical costs meant that price declines were not uniform. DDGS delivered by rail to the West Coast of the United States dropped in price by about $8/MT while barge rates to the Gulf increased by more than $5/MT. Rates for containerized DDGS to Asian nations averaged down about $3/MT, but the range varied from $3 higher to $12 lower. The delivered price to Japan saw the largest decline, and that sparked a fresh inquiry from a Japanese buyer for prompt shipment of 1,400 MT to base ports.
Ethanol/DDGS production has recently increased to meet the demands of the summer driving season while domestic demand for DDGS from the beef sector is at a seasonal low point. Such factors can work to the benefit of Asian buyers in negotiating rates for containerized DDGS prices through the July to September time period. However, any additional downside is likely to be limited before pollination of the U.S. corn crop is complete in July. In contracts, any sort of unfavorable weather in the near-term and resulting declines in crop corn conditions should cause prices to rally, and that in turn would reduce the ability of DDGS merchandisers to agree with negotiations for prices that are even lower than current levels.
Ethanol Comments: The U.S. ethanol industry is currently on pace to export about 5-6 percent of its total ethanol inventory. The need to entice continued global demand means that ethanol must remain priced competitively and large petroleum reserves will presumably cap summer gasoline prices. As well, DDGS prices must remain competitive against abundant global soymeal. The end result of such facts is that margins for ethanol facilities are expected to remain positive, albeit thin this summer. That expectation seems to be reflected in the present struggles of the differentials between the spot price of corn and ethanol co-products in primary regions of the Corn Belt to rise above the week ago levels. Those differentials are as follows for the week ending May 22, 2015:
- Illinois differential is $2.60 per bushel, in comparison to $2.49 the prior week and $3.83 a year ago.
- Iowa differential is $2.35 per bushel, in comparison to $2.39 the prior week and $3.62 a year ago.
- Nebraska differential is $2.11 per bushel, in comparison to $2.18 the prior week and $3.44 a year ago.
- South Dakota differential is $2.57 per bushel, in comparison to $2.61 the prior week and $3.97 a year ago.
Present demand for ethanol is sufficient to maintain ethanol stocks of 20.4 million barrels, which is close to the week-ago level of 20.3 million barrels. However, it is necessary for prices to encourage increased consumption of production that averaged 958,000 barrels per day (bpd) for the week ending May 15 (a rebound from the prior-week’s level of 912,000 bpd), in order not to see a more substantial growth in total U.S. ethanol stocks.