Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: DDGS merchandisers consistently reported that business was slow during the past week; that development presumably stems from the fact that many customers desired to see USDA’s November data before conducting any additional purchases. The Outlook section of this report notes that USDA’s data was more bearish than expected and that enabled corn contracts to fall down to levels around $3.60 per bushel for the nearby December contract. Prices only declined for a day after the report before stabilizing because there seems to be a large number of investors who are looking to purchase corn contracts around this lower level. Many ethanol facilities would like to lock in the price of their future corn needs and encourage their DDGS merchandisers to build mutually beneficial agreements with customers.
Domestic and foreign DDGS buyers limited most of their purchases in the nearby spot market this past week. For example, there was a sale of 3,000 MT to buyers from Thailand and another 1,000 MT to Vietnamese buyers. However, a number of merchandisers are willing to offer a larger volume of inventory into the future and they are seeking to entice such interest by reducing prices by $6/MT for containerized DDGS in December and January, but with little change in their offers for the nearby spot market.
Distant DDGS prices are modestly more expensive because of the cost of carry that is priced into corn futures contracts. It is presumably not realistic to assume that those more distant corn contracts will eventually decline down to the present level of the nearby contract, because uncertainty and price volatility normally increase going into the spring.
Ethanol Comments: Crude oil futures have been in decline while the most recently weekly data from the Energy Information Administration (EIA) reports that the national average price of regular gasoline increased 11 cents above the prior week. The development of such dichotomies may be an indication that a bottom is forming in prices. Such news would be welcomed by the majority of U.S. ethanol facilities.
Ethanol stocks of 18.9 million barrels for the week ending November 6, 2015 are basically unchanged from the prior week’s level of 18.8 million barrels. This occurred even though the average daily rate of production increased to 982,000 barrels per day (bpd); this is above the prior week’s rate of 969,000 bpd and is 3.8 percent above the year-ago rate of 946,000 bpd. The current sizable daily production rate and stable stocks could be interpreted to mean that there is a steady outflow of exports; however, ethanol imports are also on the rise. The average daily rate of ethanol imports increased to 26,000 bpd for the week ending November 6, 2015, above the week-ago rate of 10,000 bpd. Increasing imports could facilitate a rebound in total stocks, particularly if exports slow down, and that development could constrain ethanol producer margins as already seems to be implied in the data below that shows the differentials between the value of corn and co-products for the week ending November 6, 2015:
- Illinois differential is $1.70 per bushel, in comparison to $1.86 the prior week and $3.26 a year ago.
- Iowa differential is $1.47 per bushel, in comparison to $1.60 the prior week and $2.80 a year ago.
- Nebraska differential is $1.71 per bushel, in comparison to $1.78 the prior week and $2.76 a year ago.
- South Dakota differential is $1.67 per bushel, in comparison to $1.79 the prior week and $2.76 a year ago.