Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: DDGS demand was slow this past week as many buyers wanted to first see the results of USDA’s September data before deciding on a purchasing strategy. Those DDGS buyers are expected to make active inquires next week since the USDA data caused a pronounced jump in corn prices today.
The pricing structure indicates that DDGS merchandisers have mounting inventory that they are anxious to move. Consequently, they seem to have the strongest interest in selling large-volume purchases. Sizable price declines were offered to domestic buyers if they were willing to purchase rail-delivered DDGS in volume. Buyers of FOB vessels at the Gulf of Mexico were also offered similar favorable pricing opportunities. Buyers of containerized DDGS were not offered lower prices for spot market purchases, but they were also presented substantial cost savings for purchases at least one to two months into the future.
Ethanol Comments: Improved demand for ethanol is implied in the decline of total ethanol stocks to 18.6 million barrels from the prior week’s level of 19 million barrels. Total U.S. ethanol stocks are now only 3.4 percent larger than the year-ago level of 18 million barrels. Furthermore, the decline in stocks occurred while the average daily production rate of ethanol increased to 958,000 barrels per day (bpd) from the prior week’s rate of 948,000 bpd. Lower price levels are apparently incentivizing consumption.
Please consider that the national average price of gasoline is presently approximately $2.44 per gallon, which is more than a dollar cheaper than the year-ago price. Stated differently, the $46.02 price for a barrel of petroleum in Texas (WTI) is less than the $47.30 decline from the year-ago price level. Consumers have incentive to increase demand. Strong demand may stabilize returns for ethanol producers. The differential between the cost of corn and the co-products improved slightly during the week ending September 11, 2015:
- Illinois differential is $1.66 per bushel, in comparison to $1.72 the prior week and $2.94 a year ago.
- Iowa differential is $1.61 per bushel, in comparison to $1.57 the prior week and $2.78 a year ago.
- Nebraska differential is $1.54 per bushel, in comparison to $1.44 the prior week and $2.71 a year ago.
- South Dakota differential is $2.26 per bushel, in comparison to $2.22 the prior week and $3.24 a year ago.
Last week, this section included a chart that showed the steady increase in U.S. ethanol exports from 2013 into the present day. To provide additional historical context, it should be noted that the U.S. was a net importer of ethanol in 2009. In 2010, exports exceeded imports by 200 million gallons, turning the U.S. into a net exporter. By 2011, the U.S. was the world’s largest ethanol exporter, a position it still maintains. Exports in 2011 were about 1.2 billion gallons, triple the approximately total 400 million gallons exported in 2010. The turnaround in 2011 is attributed to:
- A decrease in Brazilian ethanol production and global exports;
- The prospect of a 10-percent blend wall, which led the U.S. ethanol industry to export as an outlet for record production.
During the 2014 calendar year, a total of 837 million gallons was exported. Through July of 2015, the U.S. ethanol export pace is ahead of last year’s pace. Key export markets include Canada, Mexico, and the EU.