Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: DDGS merchandisers reported several important changes to price dynamics this week: First, the sudden decline in Chinese demand caused the inverted condition of DDGS prices to decline so that the nearby prices are no longer as elevated in relation to forward prices. Second, shipping lines are implementing General Rate Increases (GRIs). (Please note that this this section has been warning about the evolution of higher freight rates for some time and now such events seem to be transpiring).
It is unknown if inverted price conditions will return once Chinese buying resumes. However, DDGS merchandisers report that there are presently lots of inquiries from Chinese buyers who are anxious to keep a handle on market conditions. Presumably attributable to the momentary lull in Chinese buying is the fact that the California market feels a little softer in nearby prices, but steady in the deferred market.
Domestic DDGS prices were down early in the week but worked back up as the week progressed. This rebound happened in part because the early price weakness spurred many domestic end-users to lock in supplies through the first quarter of calendar year 2014. Various foreign buyers also secured pricing through the first and second quarters of next year. As a result, a number of ethanol plants claim they are sold out of DDGS through January.
Ethanol Comments: The price of ethanol, like any other commodity, is heavily influenced by available stocks. Total U.S. ethanol stocks are sufficiently tight that the price of ethanol is similar to last year even though corn input costs have declined. The result of a stable price and reduced cost is an improved profit margin for ethanol facilities. The improved margins should encourage greater production that eventually allows domestic stocks to rebuild. However, that point has still not been achieved as U.S. ethanol stocks are now reported to be a full 25 percent below last year. It seems that global buyers have an appreciation for U.S. ethanol.
It is unfortunate that demand for U.S. ethanol can appear more consistent than does U.S. biofuel policy, but industry participants presently have no reason to be overly concerned. Congressional opponents of the Renewable Fuels Standard (RFS) lack the support and positions to implement legislation that will reverse policy in the foreseeable future. EPA did make adjustments to account for the 10 percent blend-wall, but foreign demand has consumed any excess production and then some. If global crude oil production expands, then there could be points in the future when ethanol prices periodically decline in order to keep export channels open, but such price action is not a threat. The differentials between corn and the co-products values declined this week across the Corn Belt, but the decline was from outstanding to great:
– Illinois differential is $3.97 per bushel in comparison to $4.50 the prior week and $1.21 a year ago.
– Iowa differential is $3.40 per bushel in comparison to $4.25 the prior week and $1.17 a year ago.
– Nebraska differential is $3.08 per bushel in comparison to $3.87 the prior week and $1.53 a year ago.
– South Dakota differential is $3.60 per bushel in comparison to $4.34 the prior week and $1.34 a year ago.
As touched upon earlier, ethanol stocks of 15.6 million barrels were 25 percent below the year-ago level of 20.8 million barrels. Ethanol production declined for the week ending 12/13 to 928,000 barrels per day (bpd), in comparison to 944,000 bpd the week before. The production level for the same week a year ago was 822,000 bpd.