DDGS Market Perspectives July 10, 2015

Publish time: 15th July, 2015      Source: Grains Council
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Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: There was a modest decline this past week for rail-delivered DDGS to domestic buyers on the West coast, but DDGS prices increased for everyone else.Rate increases generally varied from $9-12/MT for containerized and bulk DDGS, but rates to Taiwan and Alberta, Canada increased well above those levels. Logistical costs are a key factor in determining rate variability to different destinations.Present logistical costs could be substantially different than will exist this fall when multiple crops are being simultaneously harvested. DDGS merchandisers can generally obtain more favorable rates from logistical companies by planning ahead.

A number of DDGS buyers are inquiring about DDGS prices in the October-November-December time period, but they seem reluctant to agree upon a price out of concern for missing a substantial setback in corn futures this fall.However, the preceding outlook section explains why any harvest decline in corn prices this fall is unlikely to be as large as many individuals were expecting even a month ago.Therefore, it is entirely possible that limited corn futures declines and higher transportation costs may not be much different than a combination of current corn futures contracts and prearranged freight rates for this fall.Consequently, any near-term limited sell-off in corn futures contracts is presumably an opportunity for DDGS buyers to work with merchandisers in order to investigate pricing possibilities for the October-November-December time period.

Ethanol Comments: Gasoline futures attempted to break out of a month-long trading range and sell-off on Monday due to concerns about the Chinese economy and global demand. However, it quickly become evident that such bearish action was premature and gasoline futures reestablished themselves back into the horizontal trading range. U.S. domestic gasoline demand has been relatively strong and that is beneficial for ethanol demand. As a result, it makes sense that USDA increased their estimate for the amount of U.S. corn used in ethanol production during the current 2014/15 crop year by an additional 25 million bushels.

As noted in the Outlook discussion, the increase in both domestic and export demand for corn raises the price floor for U.S. corn before the fall harvest. The result of firmer corn prices and horizontal gasoline prices is the narrowing of margins for ethanol producers. At the same time, U.S. ethanol production remains at high levels in order to retain market share. The average daily ethanol production rate increased to 987,000 barrels per day (bpd) for the week ending July 3, which is above the prior-week’s level of 968,000 bpd and the year-ago level of 927,000 bpd. There was also an increase in the total U.S. ethanol stocks to 19.8 million barrels from the prior-week’s level of 19.5 million barrels. The natural result is an emphasis on increasing efficiencies at ethanol facilities.

The need for improved efficiency due to narrower margins is implied by the differential between the cost of corn and the co-products that declined in three of the four primary locations across the Corn Belt for the week ending July 10, 2015:

  • Illinois differential is $1.62 per bushel, in comparison to $1.74 the prior week and $3.39 a year ago.
  • Iowa differential is $1.59 per bushel, in comparison to $1.52 the prior week and $3.09 a year ago.
  • Nebraska differential is $1.28 per bushel, in comparison to $1.37 the prior week and $2.95 a year ago.
  • South Dakota differential is $1.87 per bushel, in comparison to $2.12 the prior week and $3.43 a year ago.

Country News

France: The condition of French corn and spring barley have been hard hit by persistent dry weather, reports Reuters. The good/excellent score for barley has fallen by seven points in the last week to total 66 percent, with an overall decline of 17 points over the past month. The corn score has fallen by 10 points in the last week to now total 71 percent good/excellent, with an overall monthly decline of 13 points. The winter barley harvest was reported as 85 percent complete on July 6, with initial results indicating a good harvest largely unaffected by the hot and dry weather plaguing the country. French corn stocks remain high at 3.3 MMT in spite of recent exports within the EU.

South Africa: Africa’s largest producer imported 79,850 MT of corn from Argentina since April, according to Bloomberg News. Reuters further reports that South Africa intends to import another 50,000 MT of white corn from Mexico. The price of yellow corn has risen by 26 percent in 2015.

Ukraine: Agriculture Minister Oleksiy Pavlenko has stated that Ukraine might be forced to reduce its forecast for the 2015 grain harvest if hot weather continues, according to Reuters. An earlier June forecast projected Ukrainian farmers could harvest 60 MMT of grain with predicted exports at 34 MMT, however the minister has indicated that another week of hot weather could negatively impact late corn maturation and force a reduction. Further, the grain harvest has begun in most of the country and so far farmers have harvested 450,000 hectares of barley.