DDGS Comments: The price of containerized DDGS prices to Asian markets increased by approximately $5/MT for the month of March, but was slightly lower for April and May. This pricing dynamic seems to imply that DDGS supplies in the spot market are becoming tighter as ethanol facilities momentarily slow down their production rates. (Please see related discussion in the ethanol section).
Domestic buyers would like to secure more DDGS at favorable prices because the basis for corn in the Central United States remains firm. One reason behind this situation is because many U.S. farmers are confident that feed grain prices will remain firm going into USDA’s Prospective Plantings Report that will be published on March 31.
Domestic buyers of DDGS have recently been able to purchase all of the DDGS they needed in the spot market since the majority of Asian buyers were temporarily celebrating Chinese New Year. The need for domestic buyers to compete against returning Asian buyers seems to be a second reason that containerized DDGS prices have increased for the month of March.
Ethanol Comments: Ethanol stocks are presently increasing back up to levels where they were in the middle of 2012, but a return to levels of two years ago is not ominous by itself. The fact that total U.S. ethanol stocks continued to increase to 21.6 million barrels would be more threatening if it occurred in the fall rather than for week ending February 20.
Long-term storage of ethanol stocks can be expensive and would likely apply additional pressure to prices, except for the fact that the current market is about to enter a period of increasing demand. Therefore, short-term storage of sizable stocks is not expected to exert excessive pressure on present ethanol prices.
Ethanol producers are currently taking the appropriate actions by reducing the rate of average daily production down to 947,000 barrels per day (bpd). That is a one week decline in the daily rate by 18,000 bpd. More than likely, such declines will continue, which will help guarantee that increasing ethanol consumption this spring will be taken from stocks.
The differential between the cost of corn and the return for the co-products of ethanol gives no cause for alarm. The differential between the spot value of co-products and ethanol is the following across the Corn Belt for week ending Friday, February 27, 2015:
Illinois differential is $1.78 per bushel in comparison to $1.73 the prior week and $5.36 a year ago.
Iowa differential is $1.41 per bushel in comparison to $1.43 the prior week and $3.27 a year ago.
Nebraska differential is $1.28 per bushel in comparison to $1.37 the prior week and $3.05 a year ago.
South Dakota differential is $1.67 per bushel in comparison to $1.58 the prior week and $3.69 a year ago.
Country News
Brazil: Truckers in Mato Grosso continued their strikes this week after rejecting an initial government overture to meet some of their demands followed by threats of large fines, according to Reuters. The strike has expanded to 91 blockades across nine states and has caused shortages of petroleum and fresh food in the impacted areas. The government initially reached out by offering a year of free financing for truckers as well as offering to work with truckers and transportation companies to create a rate-setting framework, which was ignored by the strikers. This offer was followed up by a threat from Justice Minister Jose Eduard Cardozo to impose fines of $1,700-$3,400 per hour on the strikers for blocking roads. The primary motivators of the strike are demands for the reduction of the price of diesel, which are about 50 percent higher than the international average. So far, the major ports of Parangua, Santos and Rio Grande have not seen a huge impact in their shipping, but there are fears that this could worsen if the strike continues.
China: China’s corn imports have declined as the country begins turning to its large stockpiles to meet demand, according to Bloomberg News. January corn imports totaled 579,534 MT, which was a decline from December’s 607,323 MT and January 2014’s 650,985 MT. Ukraine was the largest supplier in January 2015, providing 470,047 MT, which was a 19 percent increase from the amount it shipped in December. USDA has pegged China’s corn stockpiles at 100 MMT, which led it to cut its import estimates for China from 6 MMT to 2.5 MMT. USDA further amended that it estimates imports will increase to 2.9 MMT in 2015/16, which is down from the earlier estimate of 7 MMT. Its 2023/24 estimate was cut from 22 MMT to 6.5 MMT.
Russia/Ukraine: Both Russian and Ukrainian officials are considering increased trade protections in a bid to keep food prices from spiraling out of control as their currencies consistently lose value at an alarming rate, reports Reuters. For the moment, Russia has taken greater steps to control exports than has Ukraine. The Russian ruble has lost about 50 percent of its value while Ukraine’s hryvnia has lost 70 percent since early 2014. Food prices since January 2014 have inflated by 20.7 percent in Russia and 30.1 percent in Ukraine. So far, export curbs have only been assigned to wheat, but officials could potentially expand this to include barley and corn. A mild, wet winter could be propitious for Ukraine’s crop this year, while Russia’s winter grain is in very poor condition.
South Africa: Continued hot and arid conditions in Free State and North West provinces, which produced 64 percent of South Africa’s 2014 corn harvest, could shrink the corn crop by 32 percent, reports Bloomberg News. Insufficient rains in the impacted provinces have caused irreversible damage to the corn crop. Farmers could bring in 9.67 MMT of corn this year, which is down from last year’s bumper harvest of 14.3 MMT.