DDGS Comments: The different perspectives of participants within the global DDGS market became readily apparent this past week. Consider the following interesting conditions: This week, the most active pricing inquiries from foreign buyers were being made by Chinese clients, while other Asian DDGS buyers were more detached from the market.That pattern of price inquiries was the opposite last week.
Curiously, it was U.S. exporters who were most active in making actual purchases.These domestic buyers were willing to pay $15-20/MT more than the bids coming out of Asia. This differing willingness to purchase implies that local market conditions can have a substantial influence on perspectives: The domestic DDGS buyers observed the recent sell-off in corn futures contracts and seemed to view that event as a buying opportunity before U.S. feed grain prices become increasingly volatile this spring. (Please see the preceding discussion in the Outlook section.) Alternatively, Chinese buyers are likely being influenced by the more bearish outlook for soymeal prices in their own local market.
The perspective of DDGS merchandisers seems to be that they are comfortable with unchanged price levels, but they are not willing to discount prices further while corn futures contracts rebound in Chicago.The result is that there was a slight decline in the bulk rate of DDGS to the Gulf of Mexico this past week while the average domestic and containerized prices were virtually unchanged. The modest increases in the rates for containerized DDGS to Vietnam and Thailand may have had more to do with logistics than any other factor; this factor is expected to become increasingly important after the first of April due to the prospect of a general rate increase (GRI).
Ethanol Comments: Ethanol prices have basically remained within a horizontal trading range during the past three months. Last year, there was a rebound in prices during that same time period. In comparative terms, this season’s price action is already weaker and an additional sharp setback in price seems unwarranted under present conditions.
The fact that crude oil stocks are well above a year ago is touted as a bearish condition by some ethanol market observers, but the stocks of petroleum products are not nearly so ominous. Crude oil stocks are large because refiners have made acquisitions of product at price levels that are perceived to be very favorable. Refiners will soon begin to increase production from those enlarged stocks in order meet the anticipated growth of summer driving demand.
It is also possible that market perceptions could become more bearish if rumors of imports of Brazilian ethanol do evolve into something of significance. So far, no ethanol imports at all are confirmed by EIA data. Rather, the data shows that total U.S. ethanol stocks declined by 1.7 percent, from 21.2 million barrels the prior week down to 20.8 million barrels for the week ending March 13. The average daily production rate for this same week of 947,000 barrels per day (bpd) is basically equivalent to the prior-week’s rate of 944,000 bpd. Therefore, the present stability in average ethanol producer margins does make sense. The differential between the spot price of corn and the co-products of ethanol is not a producer margin but it is a useful indicator that implies continued stability through the week ending Friday, March 20:
- Illinois differential is $2.05 per bushel in comparison to $2.04 the prior week and $7.89 a year ago.
- Iowa differential is $1.83 per bushel in comparison to $1.67 the prior week and $5.48 a year ago.
- Nebraska differential is $1.68 per bushel in comparison to $1.57 the prior week and $5.11 a year ago.
- South Dakota differential is $1.79 per bushel in comparison to $1.88 the prior week and $6.26 a year ago.
Country News
China: China has ordered 600,000 MT of Ukrainian corn with the expectation for further bookings throughout the year, reports Reuters. The shipments come under the auspices of a loan-for-grain deal that China had previously signed with Ukraine. Some of the Ukrainian shipments for April/May were quoted at $240/MT including cost and freight. China received 1 MMT of Ukrainian corn last year through the loan-for-grain deal.
Japan: Japan is reducing its purchases of feed wheat in favor of cheaper corn, according to Bloomberg. The government anticipates purchasing 680,000 MT of wheat this year, a reduction of 24 percent from last year. Purchases of feed barley have also been cut by 47 percent to total some 690,000 MT.
South Africa: Africa’s largest corn producer is experiencing its worst drought since 1992, which has caused the country to import corn for the first time in 11 months, according to Bloomberg News. South Africa will need to import 934,000 MT of yellow corn through March 2016. Three shipments of 30,000 MT each are already en route from Argentina. This drought comes on the heels of one of the largest crops in recent memory.