DDGS Comments: Domestic DDGS prices for the remainder of November were about $4/MT stronger and pricing for December onward was an additional couple of dollars higher. In contrast, containerized DDGS for the export market presented an opportunity to buy at price levels that are lower than last week. Similar to the domestic pricing structure, the greatest weakness for exported DDGS prices was in the spot market.
The favorable pricing caused interest from Asian buyers to pick up suddenly. Korean buyers just purchased 10,000 MT to Busan/Kwangyang at the $179-181/MT level. There have also been some smaller sales to buyers from Thailand in the past two weeks. The amount of inquiry from Southeast Asia has suddenly spiked.
The increased interest from buyers seemingly relates to corn price levels that existed several weeks ago. Corn futures contracts have rallied more than 30 cents per bushel from the first of October until now. Selling at those prior levels can be difficult, but some DDGS merchandisers have inventory that needs to move and will do their best to assist buyers in coming close to their pricing objectives. Those pricing opportunities will decline in number as the surplus DDGS inventory is depleted. Merchandisers seem to be particularly interested in doing business with buyers who maintain good credit ratings via on-time payments.
Ethanol Comments: There is a normal seasonal pattern for fuel consumption to peak in summer and then decline into fall. Those alternations in demand have an expected influence upon price, and recent changes in ethanol prices are no exception. Of course, the reduced demand does eventually level off and prices stabilize, often into a trading range. Near-term alterations to stocks can then have an influence if prices are in the high or low end of that trading range.
There was a modest decline in ethanol stocks this past week down to 18.4 million barrels. That was 1.6 percent less than the prior week’s level of 18.7 million barrels. The decline in total ethanol stocks was enough to enable the annual change to fall back below 20 percent of the year-ago stocks level of 15.4 million barrels. Remaining below 20 percent of the year-ago level seems necessary for ethanol prices to go midlevel or higher within the trading range.
Last year’s relatively tight stocks and high prices incentivized increased ethanol production. On October 18, 2013, the differential between the price of corn and the co-products ethanol and DDGS was more than a dollar above current levels across the Corn Belt. The fact that the differential has primarily leveled off at lower rates is not encouragement for increased production. Consequently, it makes sense that there was a slight decline from 901,000 barrels per day (bpd) down to an average daily rate of 885,000 bpd for week ending October 10, 2014.
The differential for the week ending Friday, October 17, 2014 is as follows:
- Illinois differential is $2.29 per bushel, in comparison to $2.06 the prior week and $3.41 a year ago.
- Iowa differential is $1.96 per bushel, in comparison to $1.94 the prior week and $3.04 a year ago.
- Nebraska differential is $2.01 per bushel, in comparison to $1.72 the prior week and $2.93 a year ago.
- South Dakota differential is $2.12 per bushel, in comparison to $1.97 the prior week and $3.28 a year ago.
Country News
Russia: The grain harvest in Siberia has hit delays due to snow, according to Bloomberg News. Snowfall totaling an inch before melting has made it difficult to get equipment into the fields and could force farmers to scale back the harvest. Siberia produced 17 percent of Russia’s 92.4 MMT grain harvest in 2013/14 and roughly 90 percent of Siberian grain has been harvested. Russia’s barely harvest is estimated to be 19.5-20 MMT and the corn harvest is estimated at 11-12.5 MMT.
South Africa: Yellow corn for December delivery fell by 1.2 percent to $178/MT, reports Bloomberg News. This fall came after five days of rising prices.
Ukraine: UkrAgroConsult has announced that Ukrainian corn exports could fall by 7 percent to 18.5 MMT in 2014/15 due to a reduced harvest and already low global corn prices, according to Reuters. Very hot late summer weather and the loss of corn acreage due to fighting in Eastern Ukraine are chiefly to blame for the reduction. Ukraine has the potential to harvest up to 25.9 MMT of corn this year, which is a decrease from the record 27 MMT it saw in 2013.