Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: Limited demand is helping keep down the nearby spot market price of DDGS in comparison to offers in the more distant months. However, one merchandiser did note that 20,000 MT of DDGS were sold to a single Asian buyer for shipment in January. The first quarter of 2016 seems to be a time that an increasing number of DDGS buyers desire to lock down their prices in order to avoid future volatility.
DDGS prices for December and January indicate the fact that they are typically hedged with the more expensive March 2016 corn contract. In a typical season the December futures contract normally reflects the harvest low in prices. Corn futures contracts for the following months, such as March, May and July, usually stair-step higher than the December contract because of additional costs such as storage and insurance. Futures prices then tend to decline back down going into the next December. However, DDGS buyers should note that such a rise and fall is currently not priced into Chicago corn futures; instead, corn futures presently increase through all of 2016 and straight into the summer of 2017. This pricing structure seems to indicate that many market participants believe that the nearby December 2015 corn contract will be as low as prices get for several years.
Ethanol Comments: Ethanol futures contracts attempted to stabilize after a four-day decline. The nearby December contract remained above yesterday’s low price of $1.479/gallon and initially made a firm rebound early this morning, but then closed lower; this action created an undecided looking price chart.
The recent sell off in ethanol futures happened in part because of reports that production has jumped to the highest level in more than three months. The increase in ethanol production can be primarily attributed to improving returns (please see the following differentials between corn and the co-products of ethanol and DDGS). The average daily rate of production for the week ending October 30, 2015 increased to 969,000 barrels per day (bpd) from the prior week’s average daily rate of 944,000 bpd; this production rate is also 4.5 percent above the four-week average of 929,000 bpd.
The increased production has resulted in total U.S. ethanol stocks increasing to 18.8 million barrels, up 2.7 percent from the prior week’s total of 18.3 million barrels. Adding to the stock level was a return of U.S. ethanol imports at an average daily rate of 10,000 bpd. Total U.S. ethanol stocks levels are 9.3 percent above the year-ago level of 17.2 percent, but indications that this is not a burdensome amount seem to be implied in the fact that the differential between corn and co-products was able to consistently improve across four primary regions of the U.S. Corn Belt for the week ending October 30, 2015:
- Illinois differential is $1.86 per bushel, in comparison to $1.68 the prior week and $2.55 a year ago.
- Iowa differential is $1.60 per bushel, in comparison to $1.57 the prior week and $2.41 a year ago.
- Nebraska differential is $1.78 per bushel, in comparison to $1.71 the prior week and $2.56 a year ago.
- South Dakota differential is $1.79 per bushel, in comparison to $1.74 the prior week and $2.51 a year ago.
Ethanol Exports: U.S. ethanol exports for the month of August were down seasonally to 1.197 million barrels, according to the Energy Information Administration. Exports for August were down 7 percent from the same month a year ago but were up 1.2 percent compared to August 2013. For the year thus far, U.S. ethanol exports are up 4.7 percent from the same period a year ago. Canada remains the top export market with Tunisia taking the second largest volume during August.