Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: DDGS merchandisers report that Chinese buyers continue to look for near-term coverage. One merchandiser was able to sell about 13,000 MT this week, with the majority priced for October shipment. Most of these sales were to China, but small amounts were also destined to Taiwan, Malaysia, Japan, Vietnam and Korea.
This week’s limited rebound in prices has reduced buyer inquiries about the September period because they don’t want to get caught holding old-crop product when new-crop becomes available. As noted in the ethanol discussion, some influence from old-crop prices could last into the first part of October.
DDGS buyers continue to inquire about prices for the October-March period, but the fact that farmer selling has not picked up makes it difficult for merchandisers to offer the prices that customers are currently requesting for that time. As a result, domestic DDGS buyers are buying day-by-day in anticipation of lower forward contracts values. That strategy makes sense if one is assuming that corn prices will eventually remain compressed under the weight of a large harvest for an extended period of time. Otherwise, it probably makes sense to discuss prospective strategies with merchandisers prior to harvest. Such discussions also enable the merchandisers to investigate the prospects of incorporating both basis and container freight rates.
Ethanol Comments: The preceding Outlook section touched upon the stronger-than-normal basis in the Corn Belt. It is this higher basis that is causing corn to flow from the earlier harvest into southern states and back into the Corn Belt. A story by Reuters reports that 1,000 barges of corn are expected to move northward by the middle of September to Midwest ethanol plants from southern farms. Current market dynamics seem to imply those ethanol facilities, and their resulting DDGS clients, should not expect basis levels to decline to historical levels prior to October; and then much will still depend upon the price action of new-crop futures contracts.
Ethanol production of 844,000 barrels per day (bpd) remains sufficient to meet demand without saturating the market; this is a 13,000 bpd decline from the prior week. The result is that total U.S. ethanol stocks of 16.5 million barrels is basically unchanged from the prior week’s level of 16.4 million barrels, and about 11 percent below last year’s stocks level of 18.5 million barrels. Ethanol imports continued for the seventh week in a row, but the inflow of 19,000 bpd is almost half the prior-week’s level of 36,0000 bpd, and substantially below the same week a year ago level of 68,000 bpd.
There was a slight decline in implied margins this week for ethanol producers in the regions of Illinois, Iowa and Nebraska. There was slight improvement for implied margins in the South Dakota region. Returns remain above a year-ago in all of the regions, which is indicated by the following differentials between corn and the value of co-products values:
– Illinois differential declined slightly to $2.36 per bushel, which is in comparison to $2.40 the prior week and $1.56 for this same week a year ago.
– Iowa differential declined slightly to $2.20 per bushel, which is in comparison to $2.28 the prior week and $1.50 for this same week a year ago.
– Nebraska differential declined slightly to $1.98 per bushel, which is in comparison to $2.02 the prior week and $1.90 for this same week a year ago.
– South Dakota differential increased slightly to $2.64 per bushel, which is in comparison to $2.57 the prior week and $1.85 for this same week a year ago.