Distillers Dried Grains with Solubles (DDGS)
DDGS Comments: This past week there was a sizable reduction in the cost of DDGS that are sold FOB in the Gulf. Central American buyers of the co-product may find that there is a favorable pricing opportunity when buying DDGS in volume to load out a vessel. Multiple merchandisers have the ability to make that happen.
Asian buyers have similar opportunities too, but that also will presumably require some comparative shopping because of variability in logistical costs. That has become particularly evident in the domestic market as rail-delivered DDGS to the United States’ Pacific Northwest have recently declined, while rail-delivered DDGS to California have increased in cost.
Containerized rates to Asian destinations consistently increased this past week from $6 to $9/MT. The increase has caused some of the foreign buyers to momentarily step back from the market. It is interesting that the bid/ask levels are so firm in their resolve when agreeable terms appear to be only about $3 apart. More than likely, the price direction resulting from the USDA’s WASDE on Monday, November 10 will help clarify which side should comply.
It will be far easier for merchandisers to accept a slightly lower bid if a combination of factors should allow for a limited setback in corn futures contracts next week. Of course, purchases in sufficient volume and time into the future can help facilitate more favorable freight cost negotiations, which is particularly important in relation to rail rates because there has recently been some stiff competition from other industries for rail space.
Ethanol Comments: Corn-based ethanol continued to be the world’s lowest-cost octane enhancer, as reported in a story by Dow Jones. That is a primary reason for the consistent export demand that is anticipated to range somewhere between 800 million to 1 billion gallons in 2015. Foreign demand is coming from neighboring destinations such as Canada and Mexico, Asian nations with pollution concerns, and even the oil-rich Middle East.
Brazilian sugar-based ethanol producers are the world’s second largest ethanol producers. The majority of Brazil’s ethanol production is consumed domestically, and the industry has struggled to expand into the global market because of their own government’s policies that have recently subsidized gasoline production at the expense of the ethanol industry. The recent re-election of Dilma Rousseff as Brazil’s president has raised concerns by the Brazilian Sugarcane Industry Association that their ethanol processors may continue to struggle. That is unfortunate.
There is ample U.S. corn-based ethanol as stocks increased slightly to 17.2 million barrels for the week ending October 31, 2014. That was up slightly from the prior week’s level of 17 million barrels. However, the percentage in relation to a year ago continues to decline, down from 13.9 percent the prior week to 13.2 for the most current week. That continued narrowing against year-ago production and the stable export demand are two factors that have allowed the differential between the cost of corn and the return for the co-products of ethanol and DDGS to significantly improve in all regions for week ending Friday, November 7, 2014:
- Illinois differential is $3.26 per bushel, in comparison to $2.55 the prior week and $2.64 a year ago.
- Iowa differential is $2.80 per bushel, in comparison to $2.41 the prior week and $2.28 a year ago.
- Nebraska differential is $2.76 per bushel, in comparison to $2.58 the prior week and $1.88 a year ago.
- South Dakota differential is $2.76 per bushel, in comparison to $2.51 the prior week and $2.88 a year ago.
Country News
Asia: Asian feed millers have been caught flat-footed by a surprise rally in corn prices, according to Reuters. Millers in countries including Indonesia, Vietnam and Thailand had previously ordered cargoes over the last few months by locking in premiums that must be paid over future and leaving the futures level to be determined later.
China: A drought on the North China Plain from May-August 2014 has reduced Chinese corn production for the first time in five years, reports Bloomberg News. SGS SA conducted interviews with 307 farmers and estimates that corn output is set to drop 3.6 percent to 210.6 MMT, which stands in contrast to an October 12 USDA estimate of 217 MMT.
Further on China: China’s official news agency, Xinhua, has released a report indicating that more than 40 percent of China’s arable land is suffering from degradation, according to Reuters. Soil pollution has impacted some 3.3 million hectares.
France: French farmers had harvested 57 percent of the country’s corn crop by October 27, according to Reuters. This is up from the 38 percent that had been harvested the prior week and significantly higher than the 30 percent brought in at this point in 2013. France is the EU’s largest corn producer and the harvest this year is expected to be a record harvest in a year when the EU is pulling in a large corn crop.