Distillers Dried Grains with Solubles (DDGS)
DDGS Comments:
T
he DDGS market is firm as corn futures seem to have run into buying interest with the December corn contract trading around $4.40 per bushel. As noted in the Outlook section of this report, end-users are more than willing to extend coverage at these price levels. Demand leadership in the DDGS market is still coming from Asian buyers, particularly China. A primary reason for this strong demand is the fast growth in the Chinese dairy industry.
Dairy producers in China are making good returns and they seem to have a strong appreciation for DDGS. Chinese distributors of DDGS expect to see continued growth in that industrial sector. There seems to be increased use of contractual agreements to bridge long-term relationships between DDGS producers and Asian buyers. Buyers from China, Korea, Japan and other Asian nations seem to appreciate the stability of extended pricing agreements and business partnerships. For example, China’s Ministry of Commerce reported that the annual growth rate for the nation’s overseas direct investment during 2011-2015 is round 17 percent according to World Perspectives. Domestic buyers of U.S. DDGS may want to also consider such arrangements because they could find themselves scrambling to secure needed product if an unforeseen event should develop such as unfavorable weather and/or less planted acres of corn next season.
Ethanol Comments: The U.S. Energy Information Administration (EIA) was able to publish their Weekly Petroleum Status Report before the government shut down. The data continues to be favorable in showing that while there was a slight increase in production to 875,000 barrels per day (bpd), which is up from the prior-week’s level of 832,000 bpd, ethanol stocks still declined slightly from the prior-week’s level of 15.6 million barrels to the current level of 15.5 million barrels. Imports also declined from the prior-week’s daily average of 48,000 bpd to 14,000 bpd.
Additional positive news can be found in that ethanol producers are benefiting from the substantial decline in cash corn basis. The average price of corn in the Midwest was more than a dollar above the nearby futures contract at the end of August and it has now fallen back down to almost 10 cents below the nearby corn futures contract. The present basis levels are still high relative to the more historical basis (before last season), which was closer to 20-30 cents under the nearby contract during harvest. However, most ethanol producers are not complaining and many are willing to work with their clients to establish extended pricing of ethanol and DDGS.