Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: Buyers who worked with DDGS merchandisers to extend some of their coverage through midsummer are in a better situation than those who remained hand-to-mouth buyers after the market reacted to today’s USDA reports.
High July corn prices will encourage ethanol facilities to turn around, and that will result in less DDGS for summer. Of course, demand could also be down since pasture conditions seem favorable and less lightweight cattle will be placed on feed this summer. South American corn supplies may also keep export demand in check. Prospective prices this fall look attractive, but end-users who do not have coverage will have to run through a gauntlet of ugly prices between now and then.
DDGS inclusion rates are unlikely to increase after today’s rally in old crop contracts, but DDGS still remains competitive in the ration mix as near-term soymeal also rallies. As of this morning, Mexican demand was reported to be steady. Korean buyers were making increased inquiries, while Chinese and Vietnamese buyers were also active. However, buyers did secure a period of protection coverage, and they could temporarily back away from the market. Merchandisers are working with buyers who have immediate needs.
Ethanol Comments: Washington D.C. lived up to expectations this week, as several Congressional meetings occurred to discuss altering the Renewable Fuels Standard (RFS), and true to form nothing newsworthy came out of them. The fact is, any major alteration to policy seems unlikely at this time because the Obama administration continues to support the RFS.
Ethanol imports declined by an average of 27,000 barrels per day (bpd) for the week ending June 21, and decreased from 65,000 bpd to 38,000 bpd. That news is welcome, because the weekly production level of 885,000 bpd was not only an increase from the prior week’s level of 873,000 bpd, but also above the level seen this time last year. It would take this level of imports a long time to rebuild the current stocks of 16.3 million barrels back to their year ago levels of 20.8 million barrels. Additionally noteworthy is the fact that the week-to-week change in ethanol stocks was a decline rather than an increase.
Ethanol producer margins have recently tightened, but the prospects of maintaining positive margins through this summer looks promising. USDA reported the differential between processing products and corn as the following:
– Illinois differential decreased to $2.20 per bushel, which is down from $2.21 the prior week, but above $1.30 last year.
– Iowa differential decreased to $1.86 per bushel, which is down from $1.90 the prior week, but above $1.40 last year.
– Nebraska differential decreased to $1.78 per bushel, which is down from $1.95 the prior week, but above $1.22 last year.
– South Dakota differential decreased to $1.98 per bushel, which is down from $2.04 the prior week, but above $1.46 last year.