Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: Domestic DDGS prices declined another $9-10/MT this week and containerized export prices fell $2-3/MT. It makes sense that buyers are hesitant to react when there is such a consistent week-to-week decline in prices. The result is that there seems to presently be far more discussion between DDGS buyers and merchandisers than there is trading activity. Vietnamese buyers made a few purchases recently, but many end-users are primarily watching the market and evaluating their positions.
As the buyers and merchandisers share opinions, there seems to be agreement that a seasonal low in corn futures contracts could happen about the time the U.S. corn harvest is half complete. Individuals point out that there are some additional factors to consider this season, such as housing the enormous grain stocks in North American and likely adjustments to South American planted acreage. However, all seem to recognize that large speculators are holding a substantial short position in corn contracts going into the first of October, and they may not be able to gracefully exit at current low price levels. Consequently, a number of merchandisers have expressed a willingness to team up with DDGS end-users who are able and willing to purchase extended coverage in corn futures contracts.
Ethanol Comments: Average daily ethanol production made a substantial one-week decline down to 889,000 barrels per day (bpd). That was a six-month low level and a substantial 4.5 percent drop from the prior-week’s level of 931,000 bpd. However, the weekly production is still 6.9 percent above the year-ago level of 832,000 bpd. Total ethanol stocks are in decline from the prior-week level of 18.8 million barrels down to a level of 18.6, but the total is 19.1 percent above the year-ago stocks level of 15.6 million barrels.
The rate of weekly ethanol production may continue to decline until logistical issues are smoothed out, which presently does not look promising as the harvest of a bumper crop is coming into full fruition. This is occurring as the price of ethanol has lost 50 cents per gallon in the last month. The only positive of this sharp decline is that U.S. ethanol is increasingly attractive on the global export markets. U.S. ethanol can now undercut the price of South American ethanol. A negative of such a steep decline is that the differential between the price corn and the price of ethanol co-products is at the following lower levels for week ending Friday, September 26, 2014 at:
- Illinois differential is $2.28 per bushel in comparison to $2.40 the prior week and $3.59 a year ago.
- Iowa differential is $2.07 per bushel in comparison to $2.19 the prior week and $2.72 a year ago.
- Nebraska differential is $1.79 per bushel in comparison to $2.09 the prior week and $2.78 a year ago.
- South Dakota differential is $2.26 per bushel in comparison to $2.48 the prior week and $2.97 a year ago.