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Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: DDGS merchandisers are generally in agreement that demand is weak as end-users seem to be primarily focused on testing how low bids can be driven in relation to the price of corn contracts. So while some of the larger commercial grain trading firms are showing interest in buying the December corn futures contract around $3.25 per bushel, a number of DDGS buyers are still testing just how low they can purchase DDGS in relation to those more stable futures prices.
As buyers test the market, DDGS merchandisers report that the quantities sold are commonly small, often less than 500 MT. Constraining the size of purchases is presently giving the upper hand to buyers, and they are using that to their advantage by forcing DDGS merchandisers to competitively undercut each other in order to move product. One merchandiser reported that he missed a lot of sales in the October and November time period by keeping his prices firm.
A higher freight rate is an additional factor that is presently keeping the DDGS sales pace slow. The higher rates are not an unexpected event: This commentary has warned about it repeatedly in the past. Freight increases took place as logistical companies have sought to take advantage of increased demand that stems from a bumper crop. However, the reduced activity at trans-loaders in Minneapolis and Chicago may be an indicator that the price increases for freight have been taken too far.
The high freight costs just incentivize buyers to keep their purchases small and apply additional pressure on merchandisers to reduce their asking prices. The growing competition to move pent-up DDGS production came into full fruition this week as domestic DDGS prices declined on average by an additional $10/MT, and rates on containerized product declined by more than $20/MT. Such declines make DDGS prices very favorable in relation to corn contracts. So, when some sort of rebound does happen in corn the increase in DDGS prices could actually outpace the increase in corn contracts.
Ethanol Comments: There was a slowdown in the sharp declines that have recently occurred in the differential between the cost of corn and returns on co-products of ethanol and DDGS. There was even a slight improvement this past week in the differential in the Nebraska region. Please note, the year-ago values will be unavailable for several weeks in the data below because of the government shutdown that occurred last year. The differential for the week ending Friday, October 3, 2014 is as follows:
The average daily ethanol production rate of 881,000 barrels per day (bpd) declined slightly from the week-ago level of 889,000 bpd. This current level of production is only slightly above the year-ago level of 875,000 bpd. However, there was an unfavorable increase in the amount of total U.S. ethanol stocks to 18.8 million barrels. That is 1.3 percent above the prior week’s level of 18.6 million barrels and a substantial 21.4 percent above the year-ago level of 15.5 million barrels.
EU: ADM Germany has announced that the European Union’s corn crop is expected to total some 70.46 MMT, which is a substantial increase over last year’s 64.48 MMT, According to Reuters.
Iraq: The United Nations has estimated that the Islamic State now controls substantial portions of Iraq’s grain growing regions and that their advance forced many farmers to flee their land in the midst of the barley harvest, reports Reuters. Iraq’s Ministry of Agriculture has also expressed concern about next year’s barley crop, given that farmers traditionally use seed stock from the previous harvest when planting. Nineveh Province alone is usually sown with 835,000 hectares of barley, but it is unclear to what extent the fields will be planted.
South Africa: South African yellow corn for December delivery has dropped to $161/MT, according to Bloomberg News. This is yellow corn’s lowest price in three weeks. Further, the Crop Estimates Committee has maintained its estimate for the yellow corn harvest at 6.6 MMT.
Ukraine: Persistently hot weather in the late summer likely cut Ukraine’s corn harvest by 13 percent to total some 27 MMT, according to Reuters. Following last year’s record 30.9 MMT crop, farmers had planted corn at a record high 4.8 million hectares. However, poor weather may have cut yields to 5.2-5.6 MT per hectare, down from the 6.4 MT per hectare seen last year.