Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: DDGS merchandisers commented that the total amount of inventory slowed down this past week; this seems to have occurred in part because the majority of end users have acquired their immediate needs and because some merchandisers are fully committed in their sales for the next two months. However, other merchandisers still have DDGS inventory that they desire to sell. The result is that DDGS buyers may need to do some comparative shopping to find the best spot market price.
Competition among buyers normally starts to increase in the fall, in part because of the following factors: More cattle enter U.S. feedlots, and DDGS feed rations can increase during periods of winter weather because of certain nutritional benefits. DDGS merchandisers foresee the impending increase in demand and would like to increase their DDGS prices to at least 95 percent of the value of corn for the first quarter of 2016. However, a number of merchandisers have recently been pricing their DDGS at a lower percent of the value of corn, and such values can still be found, but the consensus is that those lower-priced opportunities may disappear before the calendar year ends.
Containerized rates for near-term shipment in November averaged approximately $8/MT lower this past week while increasing about $5/MT for shipment in December and January. The adjustment in pricing structure is explained in part because of temporary tight supplies in the barge market; nearby barge rates are currently holding about a $10 premium over deferred months. This particular market development may create pricing opportunities in the nearby market for buyers of containerized DDGS or for domestic users.
Domestic DDGS buyers typically like to confine their purchases to the nearby spot market, but the prospect of higher prices in the first quarter of 2016 is causing more of these users to inquire about extended coverage. They seem particularly interested in contracting with merchandisers who are willing to compromise on the price of DDGS as a composite percent value of corn for current and future needs.
Ethanol Comments: The U.S. average retail price of regular gasoline continued to decline for week ending October 23, 2015 to $2.228 per gallon. That is approximately 5 cents below the prior week and 83 cents below a year ago. Prices are expected to remain weak until large petroleum supplies are offset by growing consumption, which seasonally should increase as spring approaches. In conjunction, domestic ethanol consumption should also increase.
There is also a prospect of domestic ethanol consumption increasing in a limited degree from the installation of 5,000 new ethanol fuel pumps across 21 U.S. states. USDA has provided $100 million in matching grants to install pumps that offer higher blends of ethanol. Any such improvement in domestic demand is appreciated by ethanol facilities whose already thin margins have declined by approximately one third in the past two months, according to a story by Dow Jones.
Like petroleum, the price of ethanol can improve when demand begins to outpace supply. The latest data shows that current U.S. ethanol stocks stand at 18.3 million barrels for week ending October 23. This is a 3.2 percent decline from the prior week’s total of 18.9 million barrels, and a realistic 7.2 percent above the year-ago level of 17 million barrels. That the average rate of daily production during that same period declined by less than 1 percent, 944,000 barrels per day (bpd), in comparison to the prior week’s average rate of 951,000 bpd, implies that some exporting of U.S. ethanol is taking place. Improvements in demand from both domestic and foreign buyers should enable U.S. ethanol producer margins to improve, as implied by the better differential between the price of corn and co-products in the four regions of the Corn Belt for the week ending October 23, 2015:
- Illinois differential is $1.68 per bushel, in comparison to $1.53 the prior week and $2.66 a year ago.
- Iowa differential is $1.57 per bushel, in comparison to $1.40 the prior week and $2.44 a year ago.
- Nebraska differential is $1.71 per bushel, in comparison to $1.61 the prior week and $2.57 a year ago.
- South Dakota differential is $1.74 per bushel, in comparison to $1.65 the prior week and $2.52 a year ago.