Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: This week the DDGS market seemed to have lost its footing and gave back all the price stability of the past few weeks. Domestic rates were down from $5-10/MT and containerized export rates for DDGS averaged down an additional $20/MT. Yet, buyers seem to be remaining tactically patient despite the present opportunities. Vietnamese buyers purchased a limited amount of product for October shipment, but the overall sales pace for the October to December harvest period is below the normal seasonal rate. For example, one merchandiser reported that he usually has most of his October product book by this time period, but this season he has only about 40 percent sold. A similarly slow rate of sales is also being reported by domestic sales staff, with around 25-30 percent sold.
Rumors are relatively common when markets are slow. Having said that, a merchandiser reported that he was hearing rumors that one specifically large buyer has quietly returned to the market and is looking to make some purchases for October and November shipments for an unknown quantity. Of course, the “unknown” is what makes a rumor a rumor. Presently, one fact that is known is that China’s domestic corn prices are well above world price levels. Another know fact is that USDA just reduced their forecasted Chinese corn production for the present 2014/15 season by 5 million MT due to persistent summer dryness in key growing areas in the Northern Plain and Northeast. It is with such subtle developments in the market that DDGS buyers are struggling to decide when to be patient and when to take action.
Ethanol Comments: USDA increased the estimate of corn used for ethanol production during the 2014/15 season from the prior 5.075 billion bushels to a new September estimate of 5.125 billion bushels. Of course, ethanol producers will need a continuation of favorable margins for that increase to occur. Consequently, it does not seem entirely justifiable for market commutators to declare that the price of ethanol traded sharply lower this week in reaction to declining corn prices. There may be some influence but there is also a normal seasonal decline in ethanol prices during this time period. As well, total U.S. ethanol stocks are larger than a year ago. Unfortunately, that is an item that could become a pressing factor on the price of ethanol – particularly if ethanol exports slow.
The most recent total U.S. ethanol stocks figure is 18 million barrels. That is 10.8 percent larger than the year ago level of 16.3 million barrels. Current production of 927,000 barrels per day (bpd) is about 9.2 percent larger than the same week a year ago production of 848,000 bpd. Those production levels are likely to be adjusted soon if ethanol producer margins continue to decline at the rate that occurred this week. There was a large decline in the differential between the price of corn and price for ethanol co-products in all four of the reporting regions for week-ending Friday, September 12, 2014:
- Illinois differential is $2.94 per bushel in comparison to $3.58 the prior week and $3.54 a year ago.
- Iowa differential is $2.78 per bushel in comparison to $3.40 the prior week and $3.33 a year ago.
- Nebraska differential is $2.71 per bushel in comparison to $3.25 the prior week and $3.17 a year ago.
- South Dakota differential is $3.24 per bushel in comparison to $3.91 the prior week and $3.44 a year ago.