Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: The structure of DDGS prices adjusted this past week and there was some different price action for inventory destined to domestic and international destinations. All spot prices increased this past week, except for the containerized DDGS in the beginning of calendar year 2016. The average price of containerized DDGS in early 2016 declined in value by $9/MT. There was no similar discount offered on either domestic or bulk volume purchases. As well, the price for containerized DDGS remained flat through the next quarter while offers on both domestic and bulk-delivered DDGS increased into the future. Such a pricing structure seems to indicate that merchandisers are encouraging foreign buyers to extend cover of containerized DDGS into the future.
DDGS are presently priced low in relation to corn. For example, some merchandisers have offered a portion of DDGS in the first quarter of 2016 at 75 percent of corn value – a historically low level for this time of year. Merchandisers would normally like to see DDGS priced at least at 95 percent of the value of corn, and so higher prices are anticipated once they market a larger amount of their future production.
Buyers from Vietnam, Korea, Thailand and Taiwan were purchasing DDGS this past week and all bought for November and December shipment. One merchandiser was able to sell 15,000 MT. As well, Chinese buying interest has reportedly returned to the DDGS market but DDGS merchandisers report that those consumers are being patient in making purchases.
Ethanol Comments: The pricing of ethanol futures contracts implies that margins are likely to remain thin for ethanol producers through 2016: prices declined from approximately $1.56 per gallon for the nearby November ethanol contract to a low of approximately $1.51 in February before rebounding slightly into the summer of 2016. Such low prices should encourage stable domestic consumption and exports.
Continuous exporting of U.S. ethanol is one reason that current stocks are able to remain stable even though the weekly production is consistently above the year-ago rate. For example, total ethanol stocks for the week ending October 16, 2015 are 18.9 million barrels in comparison to the year-ago rate of 19 million barrels – virtually unchanged. Meanwhile, the average daily production rate of 951,000 barrels per day (bpd) is 6.1 percent above the year-ago rate of 896,000 bpd. The differential between the price of corn and co-products continued to slowly narrow in the four regions of the Corn Belt for week ending October 16, 2015:
- Illinois differential is $1.53 per bushel, in comparison to $1.64 the prior week and $2.29 a year ago.
- Iowa differential is $1.40 per bushel, in comparison to $1.47 the prior week and $1.96 a year ago.
- Nebraska differential is $1.61 per bushel, in comparison to $1.62 the prior week and $2.01 a year ago.
- South Dakota differential is $1.65 per bushel, in comparison to $1.71 the prior week and $2.12 a year ago.