DISTILLERS DRIED GRAINS WITH SOLUBLES (DDGS)
DDGS Comments: DDGS prices did decline this past week and buyers may be correct in assuming that prices could continue to have some more downside in the near-term. (Please see the discussion in the preceding Outlook section of today’s report about corn prices.) Merchandisers note that DDGS availability is getting better at the origin and supplies are becoming increasingly available as far down as Mexico.
Logistical backlogs are still being worked out and that has resulted in some buyers backing away purchases in the nearby spot market, but there currently seems to be good interest in pricing some product for the second half of the calendar year. One merchandiser just completed a 1,000 MT sale for the July-September time period. The pace of such sales could pick up substantially if there is a further near-term setback in DDGS prices.
A different DDGS merchandiser reports that while he does not have much product available to sell in the spot market, he does have future product available to sell from June onward. He is offering that product to his clients but most of the buyers say he is priced $5-10/MT too high. A near-term setback in corn futures contracts could create a pricing opportunity. Such an opportunity should probably not be neglected because both merchandisers and buyers seem to recognize that corn contracts are likely to become more volatile going into corn pollination.
Ethanol Comments: USDA left the estimate unchanged for the amount of corn used in making U.S. ethanol and by-products at 5 billion bushels for the present 2013/14 season. This stable production level is the same as in the 2011/12 season and slightly above the 4.648 billion bushels of usage seen during the 2012/13 season. USDA will give their initial estimate of corn used for ethanol and by-products during the 2014/15 season (that begins September 1) in next month’s May 9 WASDE report.
Market participants are uncertain about the production level for next season because the Environmental Protection Agency (EPA) still has not finalized the 2014 Renewable Fuel Standard (RFS). Gina McCarthy, EPA Administrator, stated that the ruling would be completed by sometime in June. She has indicated that the agency will attempt to be “more-timely” in the future. Hopefully so, as ethanol producers need to be able to plan for future production.
Several ethanol producers are in the process of performing routine spring maintenance and that is a primary reason for a slight reduction in ethanol production during the week ending April 4. Average daily ethanol production was 896,000 barrels per day (bpd), which was down from the prior week’s level of 922,000 bpd. Even with that reduced production, total ethanol stocks increased from 15.9 million barrels the prior week to 16.4 million barrels for the week ending April 4. That is a notable week-to-week increase of 3.4 percent. Total ethanol stocks are still 7.8 percent below the year ago level of 17.8 percent, but that gap between annual stock levels can quickly narrow with such weekly increases.
Adding to the amount of weekly production was another week of ethanol imports. Ethanol imports averaged 38,000 bpd, which was up from the prior week’s level of 11,000 bpd. Those imports are likely to continue at a brisk rate so long as profit margins remain at attractive levels. The differential between corn and co-products did decline for the week ending April 11, but the margins are still more than double the year ago levels:
• Illinois differential is $5.47 per bushel in comparison to $6.14 the prior week and $2.75 a year ago.
• Iowa differential is $5.31 per bushel in comparison to $5.84 the prior week and $2.41 a year ago.
• Nebraska differential is $5.04 per bushel in comparison to $5.52 the prior week and $2.57 a year ago.
• South Dakota differential is $5.84 per bushel in comparison to $6.47 the prior week and $2.73 a year ago.
COUNTRY NEWS
EU: The EU has taken steps toward making imports of Ukrainian grain duty-free as part of a larger trade package aimed to facilitate Ukraine’s drift away from Moscow, according to Reuters. If the measure is approved, a duty-free quota would be open until October 31 for the importation of 400,000 MT of Ukrainian corn and 250,000 MT of barley. A proposed comprehensive free-trade agreement that could come into effect later this year would set quotas for corn at 650,000 MT and barley at 350,000 MT.
Japan: The Ministry of Agriculture has announced that it will import 25,970 MT of feed wheat and 41,150 MT of barley following an auction that closed on Wednesday, according to Reuters. MOA had sought 120,000 MT of wheat and 200,000 MT of barley in the weekly tender and will seek the same amounts on April 16. The cargoes for both dates must be loaded by July 31 or arrive in Japan by September 30.
South Africa: Yellow corn prices declined to $207.61/MT, reports Bloomberg News. The decline comes after a USDA report indicating that grain stockpiles in South Africa were larger than earlier estimated.
Ukraine: Ukraine’s corn crop may decline by 18 percent this year as farmers reduce planting acreage for the first time in five years and limit their use of inputs due to a currency that has fallen by 34 percent against the dollar and reduced credit availability, according to Bloomberg News. Production may decline to 23.3 MMT, which is a major reduction from the 30.9 MMT of corn brought in last year, but above the 20.9 MMT in 2012.