DDGS Comments: Merchandisers reported a quiet week in the DDGS markets with limited domestic demand and small purchases from foreign buyers for containerized product, such as 500 MT destined for Haiphong at $230/MT, CFR for October, November, and December. There was also a sale of 200 MT for shipment to Kaohsiung at $223/MT, CFR for the first half of November.
There is presently a common expectation among market participants that containerized grain shipments to Asia will increase as harvest approaches. As a result, there are rumors of a possible general rate increase (GRI) of approximately $100/40’ being initiated by shipping lines around the first of November, and potentially a second increase in December.
The significance of changing freight rates is already evident in the price change that occurred this past week in containerized freight rates to various Asian destinations. For example, the average cost of shipping a 40-foot container in the nearby August spot market increased $14 dollars to one destination and decreased by an average amount of $14 to a different destination. That is a substantial $28 spread between two different Asia destinations, and it must largely be attributed to variability in freight rates. In comparison, the weekly rates decreased rather uniformly in the more distant September and October time periods.
U.S. ethanol facilities are presently making healthy margins and are running at full capacity. As a result, merchandisers are anxious for opportunities to move large volumes of DDGS. Buyers can make it much easier for merchandisers to offer the most favorable pricing terms by extending purchases into the future.
Ethanol Comments: The recent increases in crude oil prices seems to have generated some additional interest for U.S. ethanol in the global export market. As a result of this outflow, there was a sudden one week drop of 5.1 percent as total U.S. ethanol stocks declined to 17.3 million barrels. That was almost a 1 million barrel decline in stocks from the prior week’s level of 18.3 million barrels. The strong but inconsistent export demand can go a long way in maintaining favorable margins for ethanol producers.
Ethanol producer could increase further if corn prices follow a similar pattern to this time a year ago: A year ago, nearby corn futures declined from a price of approximately $4.70 per bushel at the end of August 2013 to approximately $4.30 in January 2014. A similar price decline could occur this season but it will take multiple cards falling into place because corn contracts are presently priced about a dollar lower than a year ago.
The decline in corn prices last season allowed the differential between the price of corn and combined value of ethanol and DDGS to improve. Of course, total U.S. ethanol stocks at this time were 16.3 million gallons, which is about 6.6 percent below current levels. A rebound in ethanol margins this season would require a continued drawdown in stocks, weaker corn prices and rebounding crude oil prices. This week, there was a modest decline in the differential between the cost of corn and the co-products at the majority of ethanol facilities for week-ending Friday, August 29, 2014:
- Illinois differential is $3.41 per bushel in comparison to $3.55 the prior week and $3.12 a year ago.
- Iowa differential is $3.32 per bushel in comparison to $3.29 the prior week and $2.20 a year ago.
- Nebraska differential is $3.28 per bushel in comparison to $3.31 the prior week and $2.71 a year ago.
- South Dakota differential is $3.80 per bushel in comparison to $3.90 the prior week and $2.64 a year ago.
Country News
EU: The EU is expected to have corn yields 12 percent above those in 2013, reports Reuters. The current forecast for EU corn stands at 68 MMT, which is 6 percent above last year’s crop. Additionally, it is predicted that farmers will bring in 7.53 MT per hectare, which is up 11.8 percent from last year and 11.1 percent over the five-year average.
Russia: This year’s grain harvest has the potential to be Russia’s largest since the dissolution of the USSR, according to Bloomberg News. Russia’s Grain Union currently estimates the grain harvest at 104 MMT, which because of favorable weather going into the autumn is believed to have the potential to break the 2008 record of 108.2 MMT. Russia’s exports in the season that began July 1 will total at least 30 MMT. The Grain Union estimates that 20 MMT of barley and 12 MMT of corn will be harvested, while 4 MMT of corn and 3 MMT of barley will be exported. Last year, Russia harvested 92.4 MMT of grain and pulses.
South Africa: South African yellow corn has fallest to its lowest level in three years, according to Bloomberg News. Yellow corn for December delivery feel by 1.9 percent to $168/MT. The Crop Estimates Committee increased the country’s yellow corn outlook by 4.6 percent to total some 6.6 MMT.
Ukraine: The Ukrainian winter barley harvest has been completed, and yields are said to be up by 49 percent compared to 2013 with 5.5 MT being harvest per hectare, reports Reuters.