DISTILLERS DRIED GRAINS WITH SOLUBLES (DDGS)
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DDGS Comments: The successful merchandising and global interest in DDGS was noted this past week by Secretary Tom Vilsack of the U.S. Department of Agriculture when he spoke at a container loading facility in Joliet, Illinois. Secretary Vilsack said that American biofuels need to follow the byproduct overseas, as noted by an article from www.cnchemicals.com. Efficiency from beginning to end has enabled this industry to become global within just a few years.
DDGS end-users are becoming increasingly accustomed to the routine of ethanol plants performing periodic maintenance, which a number of facilities will perform in the month of April. Merchandisers seek to work with buyers in maintaining a consistent product flow. This season has proven more challenging because of logistical issues, but as noted in the ethanol section, those difficulties are being corrected. DDGS buyers seem to recognize this fact and the result is that DDGS trading has slowed this past week as buyers are willing to momentarily step back and wait for transportation issues to improve. Buyers would also like to see some decline in prices, which did not happen this past week.
The average price of DDGS in the nearby April spot market was up by $10 or more and up about $5 per MT for the May and June time periods. Consequently, a number of DDGS buyers who have sufficient inventory for immediate needs have decided to watch corn planting conditions materialize in the United States. That tactic can pay off, but only if planting conditions are favorable. The spring planting season is a crucial period for buyers to maintain an open dialog with DDGS merchandisers.
Ethanol Comments: Ethanol futures prices had a setback this week as it became evident that logistical issues are being corrected. A primary indicator of this correction is that ethanol stocks are increasing on the East Coast, which is the United States？ largest consumption area of ethanol. Approximately 70 percent of U.S. ethanol is transported by rail and weather-related delays had rippled throughout the entire industry. Rail-lines are credited for working around the clock to correct the logistical backlogs.
Expectations for an eventual decline in the elevated spot market of ethanol was reflected in the pricing structure of ethanol futures contracts, which has more distant contracts trading at a sharp discount. A decline in the spot market is beneficial to the U.S. corn-based ethanol industry because the recent escalation in prices basically erased the premium that Brazilian ethanol held over U.S. ethanol prices, and that condition encourages the importation of Brazilian sugar-based ethanol into the United States. For the week ending March 28, imports of ethanol into the United States averaged about 11,000 barrels per day (bpd). During the same time period, improved rail flow enabled domestic ethanol production to increase to an average of 922,000 bpd, up from the prior week？s average daily production level of 885,000 bpd. Greater supplies caused total U.S. ethanol stocks to increase to 15.9 million barrels. This was an increase from the prior week？s level of 15.7 million barrels, but U.S. ethanol stocks are still 9.2 percent below the year-ago level of 17.5 million barrels.
The improved logistics and increases in production and stocks are allowing the enormously wide differential between the spot value of co-products and corn to start descending from lofty levels. The differentials for the week ending April 4, 2014 are as follows:
Illinois differential is $6.14 per bushel, in comparison to $8.31 the prior week and $2.35 a year ago.
Iowa differential is $5.84 per bushel, in comparison to $6.33 the prior week and $1.92 a year ago.
Nebraska differential is $5.52 per bushel, in comparison to $5.98 the prior week and $2.39 a year ago. South Dakota differential is $6.47 per bushel, in comparison to $6.69 the prior week and $2.52 a year ago.
COUNTRY NEWS
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South Africa: South Africa has received its first shipment of imported corn in 2014, reports WPI. The South Africa Grain Information Service reports that 14,000 MT of Ukrainian yellow corn was imported, which represented the first South African corn imports since April 2012. Corn stocks are currently 37 percent lower than at this point in 2013 and stand at 675,000 MT. South Africa has exported 1.9 MMT of corn so far this year. Total corn production is estimated at 12.95 MMT, which is an 11 percent increase over the previous year and potentially the largest corn harvest since 1981？s record setting 14.4 MMT.
Russia/Ukraine: Western banks that participate in the global commodity trade have begun tightening payment procedures for grain deals made with Russia, according to Reuters. Banks are cutting down on ？pre-financing？ on grain deals and only provide payment once there is substantial proof that grain has been loaded onto a vessel. Similar measures were applied to grain deals made in Ukraine following its violent political turmoil. Global corn prices have increased by about 20 percent this year to over $5 per bushel in part due to fears that the supply of Ukrainian corn could be disrupted, especially if plantings decrease. As of now, grain shipments from Russian and Ukrainian ports remain undisturbed.