HomeProduct Complimentary download DDGS Market Perspectives Maarch 28, 2014

DDGS Market Perspectives Maarch 28, 2014

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Publish time: 1st April, 2014      Source: Grains Council
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                   DISTILLERS DRIED GRAINS WITH SOLUBLES (DDGS)
    
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    DDGS Comments:There is presently a slight decline in DDGS prices from the spot market going into the month of June. That is perhaps one reason that buyers are showing great interest in the May-forward time period. Another reason seems to be because many market participants are hesitant to act before seeing the contents of USDA reports that will be published on Monday, March 31, 2014. Please note, the preceding Outlook section of this report highlights some near-term factors that could influence U.S. corn prices.
    
    DDGS demand from Mexican buyers is presently slow because of ample local feed grain supplies and the fact that more will soon come from the state of Nayarit. More feed grain supplies will also be available from northeastern Mexico later this spring and summer. Nevertheless, Mexican buyers are expected to eventually return with increasing inquiries regarding DDGS pricing. They could be returning in a similar time period as Chinese buyers.
    
    Chinese buyers are showing increased interest in pricing DDGS in forward months. Their bids are presently below most asking prices but the difference between buyer and seller is likely to close once purchasing approval is granted for all varieties. Several DDGS merchandisers reported that there is about a $10-$15 spread between the bid and ask for more distant delivery. Prices in the nearby spot market remain strong and some of the reasons for that are discussed in the Ethanol section of this report.
    
    Ethanol Comments: Recall how ethanol prices declined last season as it become increasingly evident that corn production was going to rebound and corn prices would fall. Ethanol price behavior this season is not conveying such a confident perspective in relation to future corn prices and production. Presently, ethanol producers know that they can make a favorable margin with current corn prices so long as they are able to move the product.
    
    The current large premium of New York Harbor ethanol prices over ethanol prices in the Midwest may take a month or more to correct even though the rail lines are working aggressively to correct the logistical backlog. Ethanol plants appreciate the fact that potential margins are good, but those returns remain only potential when the inventory is not being moved. Consequently, ethanol plants are as anxious as anyone in the supply chain to see an improvement in logistical conditions. While waiting on conditions to improve, a number of plants will continue with their plans to undergo spring maintenance.
    
    The present awkward dynamic is indicated in the fact that the potential margins being offered to producers continue to escalate even while total U.S. ethanol stocks build and production declines. U.S. total ethanol stocks for the week ending March 21 increased by 2.5 percent to 15.7 million barrels while weekly ethanol production declined slightly to 885,000 barrels per day. This occurs as the differential between spot corn and co-products valves continues to widen, as implied in the data below for the week ending March 28:
    
     Illinois differential is $8.31 per bushel, in comparison to $7.89 the prior week and $1.93 a year ago.
     Iowa differential is $6.33 per bushel, in comparison to $5.48 the prior week and $2.00 a year ago.
     Nebraska differential is $5.98 per bushel, in comparison to $5.11 the prior week and $2.02 a year ago.
     South Dakota differential is $6.69 per bushel, in comparison to $6.26 the prior week and $2.26 a year ago.
    
    
    COUNTRY NEWS
    
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    Germany: German agricultural conglomerate BayWa AG is experiencing a positive boost from increasing global grain prices brought on by the continuing tensions between Russia and Ukraine, according to Reuters. BayWa annually trades 2-2.5 MMT of Ukrainian grain and is referring to the spike in grain prices brought on by supply concerns and fear of sanctions as the "Putin Premium'.
    
    South Africa: Africa's largest corn producer has raised its output forecast by 4.5 percent after good rains in February bolstered the crop, which would make the 2014 harvest the country's largest since 1981, reports Bloomberg News. Farmers may grow 12.95 MMT of corn (5.95 MMT of yellow corn), which is an improvement over last month's predictions of 12.4 MMT. This total would also be an 11 percent increase over last years 11.7 MMT. Farmers grew 14.4 MMT of corn in 1981. South Africa's sorghum forecast was cut by 4.7 percent to 228,450 MMT.
    
    Ukraine: As of March 24, Ukrainian farmers had sown 3.7 million acres of spring grain, according to Bloomberg News. This is 52 percent of the intended total area and is the fastest planting rate in six years. This development comes despite fears that the devaluation of Ukraine's currency could force farmers to reduce purchases of inputs such as fuel, fertilizers and pesticides. Additionally, it is predicted that Ukraine's corn harvest will total some 26 MMT, which is a 16 percent reduction from last season's 30.9 MMT.