DDGS Comments: Domestic bulk rates for DDGS averaged up $2-3/MT to the Gulf of Mexico this past week while rail rates to the West Coast of the United States declined by an equivalent amount.The variability in containerized DDGS to Asian clients was much larger for the week ending March 27; the price of a 40-foot container to Yokohama, Japan averaged up $10/MT while the rate to the Philippines averaged down by $15/MT.An interesting coincidence is that the total increases and decreases in rates resulted in zero change for the weekly average of all containerized DDGS rates.
DDGS buyers may note that there are two offsetting influences for DDGS prices in the next three or four months. A bullish point of consideration is that increased volatility could drive corn futures contracts higher, into at least the first of June. (Please see the discussion in the preceding Outlook section).However, this action could be offset in part by a seasonal pattern for DDGS prices to weaken in relation to the price of corn going into the summer.Such a decline in the price of DDGS in relation to corn tends to occur because there is less domestic demand for DDGS as a forage replacement for beef cows as pasture conditions improve in the spring.
DDGS prices in the next three or four months will also be influenced by the level of U.S. ethanol production.If the present U.S. stocks of ethanol are drawn down by increasing summer driving demand, then a steady supply of ethanol and DDGS will be produced into summer, which in turn will give DDGS merchandisers more room to negotiate on price.
Lastly, logistical costs must be factored into the equation of the final delivered price for DDGS, and there was positive news this past week as the majority of competing ocean carriers have decided to wave or reduce the General Rate Increase (GRI) that was forecast to occur on the first of April. DDGS market participants will bring all such factors into consideration while awaiting the outcome of Tuesday’s data release in order to better define the most appropriate strategy.
Ethanol Comments: There was a slight increase in the average daily ethanol production rate to 953,000 barrels per day (bpd) for week ending March 20. This was modestly above the prior week’s production rate of 947,000 bpd.There was also an increase in total ethanol stocks to 21.3 million barrels, which is up 2.4 percent from the prior week’s level of 20.8 percent.
Until increased driving demand starts to pull down reserves, any additional growth in ethanol stocks could further dampen producer margins. The prospect of tightening ethanol margins seems to be implied by the narrowing of the differential between the spot price of corn and the co-products of ethanol and DDGS in three of the four reporting regions for the week ending Friday, March 27:
- Illinois differential is $1.93 per bushel, in comparison to $2.05 the prior week and $8.31 a year ago.
- Iowa differential is $1.65 per bushel, in comparison to $1.83 the prior week and $6.33 a year ago.
- Nebraska differential is $1.51 per bushel, in comparison to $1.68 the prior week and $5.98 a year ago.
- South Dakota differential is $1.90 per bushel, in comparison to $1.79 the prior week and $6.69 a year ago.
Country News
South Africa: The Crop Estimates Committee has maintained its prediction for a corn crop that could be the smallest in eight years, reports Bloomberg News. Farmers could harvest up to 9.67 MMT this year, which would be the smallest seen since 2007. While the forecast for yellow corn production was increased slightly to total 5.03 MMT (a 1.2 percent increase), prices for the grain have risen by 12 percent in recent weeks.
Ukraine: UkrAgroConsult has reduced its predictions for the 2015 corn harvest due to a smaller planting area, according to Reuters. Corn production could fall to 23 MMT, which is down from an earlier prediction of 25.9 MMT.
Zambia: Zambia may sell as much as 1/3 of its record corn harvest abroad, according to Bloomberg News. The 2014 harvest totaled 3.2 MMT and the agricultural ministry has indicated that it is looking to sell around 1 MMT. This bumper crop comes as South Africa and Botswana suffer from severe drought, while Malawi and Mozambique are enduring damaging floods.