Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: DDGS buyers from Korea and Vietnam were in the market this week and looking to potentially price shipments for the months of July and August. Their strategy makes great sense because of the favorable pricing that is currently being offered for that time period; bulk DDGS rates at the Gulf of Mexico are on average below the spot market by $9/MT for July and down $13/MT for August. In similar fashion, domestic rates for DDGS are averaging down $5/MT for July and $7/MT for August, while international containerized rates are down $4/MT below the spot price for each of those months.
In relation to rates for the nearby spot market, this week there were declines of $8/MT for both containerized and bulk DDGS being sent to foreign clients. Alternatively, there was no such decline in either domestic truck or rail rates for DDGS. The reason for this difference seems to be because domestic buyers primarily purchase only for their immediate needs while foreign buyers will often extend their purchases into the futures, which is something that DDGS merchandisers appreciate.
Foreign buyers have told several different DDGS merchandisers that they are waiting on prices to hit bottom before purchasing any more product. However, most traders know that predicting the actual bottom is easier said than done.
Ethanol Comments: The Environmental Protection Agency (EPA) finally issued the mandated ethanol production requirements for 2014, which come about two years late, and directed that the amount of ethanol that was produced during that year be produced. Such a formality is influencing the price of Renewable Identification Numbers (RINs) but it is expected to have limited influence on the present-day price of ethanol.
Demand is the factor that will influence the current and future price of ethanol, and the EPA noted that the total U.S. gasoline consumption in 2015 and 2016 is likely to be less than was forecast several years ago. As a result, the amount of ethanol consumption is also expected to be lower than was initially projected. That is a logical conclusion, but it also seems reasonable to conclude that recent declines in the price of gasoline should also encourage a rebound in consumption.
Evidence of demand is seen in the fact that total U.S. ethanol stocks declined to 20.1 million barrels for the week ending May 22, which was down from the prior week’s total of 20.4 million barrels. This reduction occurred while there was a sizable increase in the average daily production rate to 969,000 barrels per day (bpd). That increase presumably contributed to this week’s decline in the differentials between the spot price of corn and ethanol co-products in primary regions of the Corn Belt. The differentials for the week ending May 29, 2015 are as follows:
- Illinois differential is $2.39 per bushel, in comparison to $2.60 the prior week and $4.12 a year ago.
- Iowa differential is $2.14 per bushel, in comparison to $2.35 the prior week and $4.02 a year ago.
- Nebraska differential is $1.84 per bushel, in comparison to $2.11 the prior week and $3.70 a year ago.
- South Dakota differential is $2.42 per bushel, in comparison to $2.57 the prior week and $4.22 a year ago.