Distillers Dried Grains with Solubles (DDGS)
DDGS Comments:
The Census Bureau reports U.S. DDGS exports increased to a new monthly record in November 2013. The largest destination for U.S. DDGS during 2013 has been China but Japan, South Korea and Canada have all become major destinations in their own right. Various buyers in those locations have had an opportunity to take advantage of the recent setback in DDGS that occurred as market conditions became decidedly bearish prior to today’s release of USDA data. As discussed in the outlook section, today’s data was not nearly as bearish as many market participants were expecting and further downside for both corn and DDGS prices now seems limited.
Exports are important to the U.S. DDGS market and consume about 25 percent of total production. Of course, China has been and will continue to be an important player in that market, but merchandisers report that other international buyers have expressed interest in any inventory that Chinese buyers are unable to take at the moment. As well, domestic buyers are expressing a similar interest. After all, domestic beef producers remain the largest buyers of U.S. DDGS and consume a full 40 percent of total production. The domestic dairy market consumes slightly more than a quarter of all DDGS produced. Domestic poultry and swine each consume about 4-to-5 percent. Consequently, demand for DDGS has not declined; buyers are just seeking to obtain it lower prices. Buyers have been successful in obtaining lower prices for the past couple of weeks, but still even lower prices seem unlikely after the release of today’s USDA reports.
Ethanol Comments: U.S. ethanol exports in November were strong at 82.4 million gallons, which was the highest monthly export amount since March 2012. Canada remains the highest export destination but significant amounts also were sent to the Philippines, India, Norway and Brazil. Exports to Brazil are noteworthy because it implies that Brazil is unlikely to become a major competitor in the U.S. biofuel market so long as they are buying U.S. ethanol. The result is that imports of ethanol into the United States remain at zero. The rate of ethanol imports this time last year was 52,000 barrels per day for the week ending January 4, 2013.
Market related news stories this past week were somewhat excited about the fact that U.S. ethanol stocks had increased from 15.6 to 16.1 million barrels for the week ending January 3, 2014. The stories implied that this increase in ethanol stocks is bearish, but there was less emphasis on the fact that the total U.S. ethanol stock level of 16.1 million barrels is still 18.7 percent below the year ago level. As well, ethanol stocks grew in January of 2010, 2011 and 2012. Consequently, the increasing ethanol stock level during January 2014 is not necessarily an ominous sign. Of course, the gap between present ethanol stocks and the year-ago level will eventually narrow and producer returns will ebb and flow, but the industry remains healthy. The differentials between corn and the co-products values for the week ending January 10, 2014 were lower in three of four areas of the Corn-Belt but all remain well above year-ago levels:
– Illinois differential is $4.40 per bushel in comparison to $3.90 the prior week and $1.24 a year ago.
– Iowa differential is $3.00 per bushel in comparison to $3.70 the prior week and $1.15 a year ago.
– Nebraska differential is $3.06 per bushel in comparison to $3.63 the prior week and $1.43 a year ago.
– South Dakota differential is $3.25 per bushel in comparison to $3.47 the prior week and $1.49 a year ago.