Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: The table of DDGS prices shows that the premium for spot prices continues to narrow. As a result, increasing numbers of DDGS end-users are in serious discussions with merchandisers about extending their coverage. The prior year has been difficult for both seller and buyers of DDGS, and both parties recognize that pricing conditions could be less favorable next spring. There has already been an announcement that Taiwan intends to purchase 500,000 MT of DDGs from the United States over the next couple of years.
The Taiwanese purchases of 250,000 MT for each of the next two seasons are substantial. However, that is less than 3 percent of the approximately 10 MMT of DDGS that are exported each year, and less than one percent of the roughly 40 MMT of total DDGS produced each season. There remain plenty of business opportunities for both buyers and merchandisers of DDGS. As well, longer-term purchasing agreements also have the advantage of being able to specify content characteristics.
Approximately 75 percent of all DDGS production remains within the domestic market because there is an appreciation for this product. All that is needed is transparency in communication and rations can be adjusted according to nutritional characteristics to generate maximum animal performance. For example, North American cattle operations have found that low-oil DDGS are an excellent replacement for barley within rations. (Representatives at U.S. Grains Council can direct market participants toward educational resources about the usage of DDGS. For guidance please contact either Kevin Roepke (KRoepke@grains.org) or Alvaro Cordero (ACordero@grains.org).
Ethanol Comments: In Thursday’s WASDE report, USDA increased corn used in ethanol and by-product production for the prior 2012/13 season (that just finished on August 31) by 15 million bushels. The estimate was increased because data released by the Energy Information Administration indicated that August production was stronger than expected. That strong production makes sense when considering the recent increases in ethanol producer margins. The following data indicates that those margins continue to remain favorable, which is good for both the ethanol industry and buyers of DDGS.
It is also noteworthy that even though Brazilian cane and ethanol production has increased, most of that ethanol is remaining within their domestic market. Ethanol imports into the United States for the week ending September 6 declined to 15,000 barrels per day (bpd), which is below the prior week’s average of 37,000 bpd and well below the same week a year ago level of 89,000 bpd.
Total U.S. ethanol stocks are presently unchanged at 16.3 million barrels in comparison to the prior-week level of 16.2 million barrels. The present stocks level is 14.2 percent below the year ago stocks level of 19 million barrels. That year-to-year percentage difference has widened back out some, but that trajectory may not continue into fall because present production levels have increased to 848,000 bpd. This stands in comparison to 819,000 the prior week and 816,000 for the same week a year ago. The differentials between corn and the value of co-products values indicate that margins are strong and production should remain at higher levels:
– Illinois differential increased to $3.54 per bushel, which is in comparison to $3.31 the prior week and $1.43 for this same week a year ago.
– Iowa differential decreased slightly to $3.28 per bushel, which is in comparison to $3.33 the prior week and $1.43 for this same week a year ago.
– Nebraska differential decreased to $3.17 per bushel, which is in comparison to $3.30 the prior week and $1.46 for this same week a year ago.
– South Dakota differential decreased to $3.27 per bushel, which is in comparison to $3.44 the prior week and $1.57 for this same week a year ago.