Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: The week ending Friday, May 23 has seem additional declines in DDGS markets as offers presently outnumber bids for June delivery. Market demand has backed away as buyers wait for a more definitive bottom to develop in corn futures contracts. A number of domestic DDGS buyers have the expectation that weakened export demand could continue to weigh down prices. The result is that most of the buying ideas seem to be $10-$20/MT below current offers. Of course, that bid-ask spread is likely to quickly come together if it becomes evident that corn futures have found a near-term bottom.
The Chicago container market is reported to be trading in the low $230s, and there could be short-term opportunities to secure even lower prices. Prices also traded at $230 FOB Buffalo. There are reports of even lower offers in the third and fourth quarter of 2014. However, price weakness is not uniform and has seemingly plateaued in the regions of Kansas City and Minneapolis/St. Paul while prices in the Channahon/Elwood region are supported by strong local demand.
Ethanol Comments: The Environmental Protection Agency (EPA) is expected to announce their ethanol targets for 2014 before the end of June, and there is growing market anticipation that the corn ethanol target will be increased from the November estimate of 13 billion gallons to 13.6 billion gallons. This can be a favorable development for ethanol producers if it does not contribute to a temporary exaggeration in corn prices; please see the preceding Outlook section for additional discussion.
The fact that U.S. ethanol stocks have recently declined from 17.3 down to 17 million barrels for the week-ending May 16, while production increased during that same period from an average daily rate of 922,000 barrels per day (bpd) up to 925,000 bpd, seems to be evidence of sufficient demand to justify EPA increasing the amount of mandated ethanol consumption for 2014. That decline in U.S. ethanol stocks would have been even larger if there had been no ethanol imports at an average rate of 11,000 bpd. (The rate of such ethanol imports is primarily dependent upon the prices of South American sugar and freight rates rather than changes in corn prices).
The recent decline in corn prices has enabled U.S. ethanol producer margins to improve and remain well above year-ago levels. Present prices of CBOT corn futures contracts may offer an opportunity for ethanol producers to currently lock in favorable margins through the summer and avoid the prospect of an unforeseen bump in mid-summer corn prices. The present favorable margin for U.S. ethanol producers is implied in the differential between the price of corn and processed co-products that are reported from significant locations across the corn belt:
- Illinois differential is $3.83 per bushel, in comparison to $3.45 the prior week and $2.48 a year ago.
- Iowa differential is $3.62 per bushel, in comparison to $3.27 the prior week and $2.10 a year ago.
- Nebraska differential is $3.44 per bushel, in comparison to $3.10 the prior week and $2.34 a year ago.
- South Dakota differential is $3.97 per bushel, in comparison to $3.74 the prior week and $2.18 a year ago.