Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: Movement of DDGS inventory remains slow as buyers patiently wait for lower prices to materialize. The lower corn prices that occurred this past week in Chicago futures and in China seems to have increased the confidence of DDGS buyers that patiently waiting is the most appropriate strategy. Yet as the preceding market commentary notes (please see above), it is entirely possible that the past four-day decline in Chicago futures could be a temporary downward move in a market that will again trade higher. Such a technical chart pattern is not at all uncommon in Chicago futures as profit taking occurs. Therefore, buyers of DDGS are encouraged to monitor corn contracts and maintain active pricing discussions with DDGS merchandisers.
This week’s DDGS pricing implies that merchandisers are skeptical that the price of U.S. corn has much further to fall, as domestic and bulk DDGS increased approximately $3/MT. Alternatively, buyers of containerized DDGS were offered a substantial $13/MT discount, but only for nearby purchases in the month of October. This seems to indicate that there is some inventory that merchandisers are anxious to move because the price of containerized DDGS in November and December declined by less than $3/MT.
Ethanol Comments: Chinese President Xi Jinping will visit the United States next week and it would not be overly surprising if he announced the purchase of some quantity of U.S. ethanol. After all, Chinese buyers have already imported 126,000 MT of ethanol in 2015 (as reported by Reuters) which was almost five times the amount they purchased the prior year. Such growing demand has occurred because U.S. ethanol sells at an attractive discount to China’s own domestically produced ethanol. This occurs because China’s internal corn prices are far above the global rate and that has resulted in Chinese ethanol facilities running at about half capacity. It is cost effective for the 11 provinces that are required to blend ethanol with their gasoline to consider adding U.S. ethanol into the mix.
Export demand for U.S. ethanol seems a key reason that total stocks are able to continue declining even while production levels remain sizable: Total U.S. ethanol stocks for week ending September 11, 2015 fell to 18.3 million barrels from the prior week’s level of 18.6 million barrels. Even more important, this stocks level is 2.7 percent below the prior year’s level of 18.8 million barrels. Note that it has been a long time since total U.S. ethanol stocks were below the year-ago level!
The decline in ethanol stocks occurred even though the average daily production rate increased to 961,000 barrels per day (bpd) from the prior week’s average daily rate of 958,000 bpd. This rate is also above the year-ago average of 931,000 bpd. Such developments seem positive, and hopefully better margins will follow. The differential between the spot market price for corn and the co-products of ethanol and DDGS seem to imply that margins still have not strengthened during the week ending September 18, 2015:
- Illinois differential is $1.68 per bushel in comparison to $1.66 the prior week and $2.40 a year ago.
- Iowa differential is $1.45 per bushel in comparison to $1.61 the prior week and $2.19 a year ago.
- Nebraska differential is $1.45 per bushel in comparison to $1.54 the prior week and $2.09 a year ago.
- South Dakota differential is $1.72 per bushel in comparison to $1.85 the prior week and $2.48 a year ago.