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DDGS Market Perspectives April 17, 2015

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Publish time: 20th April, 2015      Source: Grains Council
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Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: This past week began with corn futures contracts breaking lower and a number of domestic buyers of DDGS taking the opportunity to purchase when the reduces prices were presented. The initial drop in the price was more than $10/MT to the West Coast of the United States and by about $5/MT to the Gulf of Mexico. That opportunity was rather short lived as corn contracts worked steadily higher throughout the remainder of the week.

The prices of corn futures contracts are presently structured to reflect the cost of storage. For example, the cost of the July corn contract is higher than the price of the May contract because of the cost of storage over several months. However, DDGS merchandisers are currently offering prices in the June and July time period that are below the price of DDGS in May. In other words, the DDGS merchandisers are absorbing the additional storage costs themselves and offering better prices to their customers. As a result, most Asian buyers are presently able to purchase containerized DDGS for June and July that are from $3-5/MT below the cost of May.

If a weather concern develops within global grain markets, then the nearby corn futures contract commonly increases above the more distant contracts. If such an event happened, it would then become difficult for merchandisers to continue offering the same favorable terms to customers. Domestic buyers could be particularly hurt in such a situation because they prefer to purchase in the spot market, and DDGS merchandisers could not help them when the nearby corn contract is priced above the more distant contracts. As well, the creation of a longer-term pricing agreement is normally also less favorable when the nearby corn futures contract is priced higher than the distant months.

Ethanol Comments: The year-ago ethanol production level of 939,000 barrels per day (bpd) exceeded the current production rate of 924,000 bpd this week.The weekly ethanol production rate may continue to decline as tighter margins are encouraging a number of plants to shut down for spring maintenance earlier this season than last season. There simply is no incentive to limit downtime when returns are breakeven and ethanol stocks are not yet decreasing. This season, the opportunity seems to exist for more extensive maintenance.

The present U.S. ethanol stocks level of 20.6 million barrels is basically unchanged from the prior week’s level of 20.5 million barrels and the differential between the spot price of corn and co-products is also unchanged, despite the lower corn prices this past week. The differential between the spot price of corn and the co-products is the following for key quadrants of the Corn Belt from the week ending April 17, 2015:

     
  • Illinois differential is $2.38 per bushel, in comparison to $2.32 the prior week and $4.89 a year ago.
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  • Iowa differential is $2.00 per bushel, in comparison to $1.99 the prior week and $4.17 a year ago.
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  • Nebraska differential is $1.89 per bushel, in comparison to $1.89 the prior week and $3.89 a year ago.
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  • South Dakota differential is $2.19 per bushel, in comparison to $2.19 the prior week and $4.72 a year ago.

Country News

China: The government is considering a plan to double subsidies paid out to corn processors in China’s main northeastern corn-producing region in an effort to prop up the industry and increase consumption, according to Reuters. This $32/MT incentive would apply to processors that have an annual capacity of more than 100,000 MT. Industrial corn consumption fell by 5.2 percent in 2013/14 to 47.6 MMT, which is the largest drop in five years. Due to large stockpiles the government has begun selling corn a month earlier than it did last year. However, corn sales have been low so far with the government reporting that it only sold 2,808 MT of the 295,481 MT it had offered this week. The average price was $395.17/MT, while imported U.S. corn is being offered at $372.75-$382.43/MT.

South Africa: Africa’s largest corn producer is looking for new markets despite being forced by severe drought to begin importing corn, reports Bloomberg News. Farmers are looking to increase sales in the Middle East and Asia, with Saudi Arabia and Vietnam being identified as particularly good prospects. For the last seven years, South Africa has exported an average of 1.9 MMT of corn annually, and while this crop may be reduced by as much as 32 percent, the prior-year’s was the largest in over three decades.

Ukraine: Ukraine intends to ship 3.5 MMT of grain to China this year as part of the 2012 loan-for-grain agreement between the two countries, according to Reuters.

Further on Ukraine: Reuters reports that UkrAgroConsult may downgrade its estimate of the country’s barley harvest due to the possibility of a reduced planting area. For now, the forecast remains unchanged at 7 MMT.

Yemen: The outbreak of violence in Yemen has caused the country’s food security to rapidly worsen and prices to double as both the corn and sorghum planting season and food markets have been disrupted, reports Reuters. The FAO estimates that 11 million of the 26 million people in Yemen are severely food insecure, while 16 million people are classified as needing at least some form of humanitarian aid and lacking access to safe drinking water