Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: DDGS prices recently declined to 70 percent of the value of corn in some areas and end-users are suddenly buying very aggressively to take advantage of this opportunity. However, price quotes have not been significantly influenced. For example, rail rates to the Pacific Northwest and California are on average up about $5.00/MT and the FOB vessel rate at the Gulf was up only about $3.00/MT. However, the fact that CIF barge rates were up approximately $15 seems to indicate that bulk DDGS prices will be on the increase if there is no further decline in corn prices.
Domestic hog and poultry buyers have become particularly interested in securing more product from DDGS merchandisers because of the high price of soymeal. In comparison, DDGS appears to be the most cost effective protein source. It was reported that $135 traded in volume for truck delivery to Chicago in October.
U.S. pork and poultry buyers may soon find increasing competition from Mexican cattle and pork buyers in the northwestern states of Sinaloa and Sonora. This is a region of potential strong demand for bulk DDGS if cost effective logistics can be arranged. In the past, Mexican buyers have not been extremely well organized in purchasing DDGS in bulk or containerized form, but the recent setback in DDGS prices seems to have sparked increased interest.
Ethanol Comments: Declining gasoline consumption, the need to move DDGS inventory and increasing competition from Brazilian ethanol exports may combine and start applying pressure to ethanol producer margins. Justification for such a concern was not reflect in this week’s differential between the price of corn and co-products, but stocks did have a significant rebound while production is at sizable levels in comparison to a year ago.
The last reported ethanol production was at an average daily rate of 937,000 barrels per day (bpd) for week ending August 15. This is an increase over the prior week’s production level of 931,000 bpd and the year ago level of 844,000 bpd. Ethanol stocks increased to 18.3 million barrels, in comparison to the prior week’s level of 17.8 million barrels.
The differential between the cost of corn and the co-products at ethanol facilities across the Corn-Belt is the following for week-ending Friday, August 22, 2014:
- Illinois differential is $3.55 per bushel in comparison to $3.55 the prior week and $2.40 a year ago.
- Iowa differential is $3.29 per bushel in comparison to $3.47 the prior week and $2.28 a year ago.
- Nebraska differential is $3.31 per bushel in comparison to $3.50 the prior week and $1.98 a year ago.
- South Dakota differential is $3.90 per bushel in comparison to $3.81 the prior week and $2.57 a year ago.
Country News
Argentina: Argentine farmers are expected to plant less corn this year due to low global prices for the grain, according to WPI. As a reference point, corn prices two years ago were around $195/MT, $150/MT at this time last year and are currently resting around $138/MT, at which level farmers would be unable to cover their production costs.
China: China is increasing its checks on U.S. sorghum and barley in order to check for pesticide residues and heavy metals, reports Reuters. This comes as Chinese feed mills have increasingly turned to U.S. sorghum as a cheap substitute for domestic corn. It is believed that inspections will impact bookings made following the ruling, but sorghum shipments that have already been booked or are in transit may not face any additional scrutiny. Shanghai JC Intelligence Co. has cut its forecast for sorghum imports to 1.6 MMT in 2014/15, which is down from its earlier prediction of 3.9 MMT. China is the world’s largest importer of U.S. sorghum.
EU: Europe’s rain-damaged wheat harvest is expected to benefit Asian grain importers as the crop is now considered suitable only as animal feed, according to Reuters. Importers in South Korea, Thailand and the Philippines are expected to favor European wheat over corn imports. Feed wheat production in Europe and the Black Sea is expected to increase to 75 MMT, which is about 13 MMT more than what was brought in last year. It is expected that European feed millers will add 3 MMT of wheat to their rations in order to reduce their dependence on corn imports. USDA recently reduced its forecast for EU corn imports to 11 MMT through September 2015, which is down from the 13 MMT it predicted in July as well as the 15.5 MMT that were shipped in the 2013/14 season.
India: Monsoon rains will be following the pattern set by the past two weeks and continue to be weak into next week, according to Retuers. The outlook for India’s corn crop is not likely to change despite the weak rains.