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DTN Distillers Grain Weekly Update
Friday, September 19, 2014 7:50AM CDT

By Cheryl Anderson
DTN Staff Reporter

DAVENPORT, Neb. (DTN) -- When months of plummeting prices of dried distillers grain finally began to turn around in early August, it appeared that price recovery was well in store. However, after just three short weeks, DDG prices began a downward trend once again.

The DTN weekly spot price average fell for the third week in a row, decreasing from $119 per ton the last week of August to $109 per ton this week.

Joel Karlin, DTN contributing market analyst and commodity manager for Western Milling in Goshen, Calif., said that a number of combined factors resulted in the recent downturn in prices.

A drop in exports is likely the single factor that has caused DDG prices to drop substantially from the levels that prevailed during the spring of 2014, Karlin said. Specifically, China, the world's largest buyer of U.S. DDG that took in more than one-third of U.S. production last year, has stopped purchasing.

"Beijing is now requiring all U.S. DDG shipments to be certified free of the MIR162 trait and such a certificate does not exist, so this is in effect a de facto Chinese ban on U.S. DDG," Karlin said.

He added that recently a group of 19 U.S. senators have been working with the U.S. trade representative to overturn the ban.

"That seems unlikely as China is sitting on a mountain of corn and have essentially banned U.S corn imports as well," Karlin said. "Talk that Chinese soybean crushing margins are deeply in the red would also suggest any resumption of U.S. DDG exports to that country is remote for now."

Also contributing to the downtrend in DDG prices was the recent World Agricultural Supply and Demand Estimates report that estimated more corn than was originally predicted.

The bearishly construed September USDA crop production report was also negative to DDG prices with corn and soybean bean meal falling. That puts downward pressure on DDG, a competing byproduct feed, Karlin said.

"Based on the fantastic finishing weather, unbelievably high crop ratings for both the corn and soybean crops as of mid-September, and historical precedent, it is expected that subsequent crop reports will report upward yield revisions, perhaps sizable," he said.

Soybean meal has belatedly started moving down rather sharply as new-crop beans move into the supply pipeline. So now, DDG that for many months was a very good buy on a per-unit-of-protein-meal basis, is no longer as price competitive compared to high-protein meals, he said.

A move in corn and soybean meal futures to new contract lows is one likely culprit, he said. Distillers grains compete with corn and soybean meal as a protein source in livestock rations and tend to mirror movement in those commodities as well.

Other factors leading to the downtrend are ample supplies, reduced demand in the latter part of summer, especially in western areas where heat remains relentless and temperatures continue at record highs, he said.

Domestic demand in recent weeks has been decent, Karlin said.

"Feeding margins are very profitable and we understand that some of the poultry and pork producers have been utilizing DDG in their feed rations for a while, though perhaps that will change as soybean meal prices recede," he said.

Supplies currently remain more than ample given a decent rate of production, with margins high and the slowdown in export business causing product to back up in the U.S.

In coming weeks, Karlin said, he believes prices will probably continue to ease into the fall with soybean and corn crops likely to get larger.

"With the USDA limited in their ability to increase demand for either crop, extra bushels will probably add to ending stocks, which for both corn and soybeans are the largest in years, and that will have a depressing impact on those two market drivers and in turn, the related feed by-product markets," he said.

End users buying near-term may want to just buy hand-to-mouth for the next few weeks, Karlin said. For those looking to contract out supplies going forward, it may be a propitious time to buy, as seasonal studies suggest certain feed ingredients such as DDG bottom prior to either corn or soybeans.

Karlin added that it may be a good idea to monitor the latest Environmental Protection Agency's stance on the Renewable Fuels Standard, since that will impact the amount of ethanol and DDG produced in 2015, as well as giving the trade a sense of where the EPA and administration stand on renewable fuels policy going forward.

Cheryl Anderson can be reached at cheryl.anderson@dtn.com.


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