Ethanol Blog

Just when it appears that prices of dried distillers grains might finally end their three-month freefall, China placed yet another demand on U.S. ethanol producers and all hell broke loose in the market.

China announced last week that it will now require official certification accompanying all DDG shipments guaranteeing it contains no trace of the GMO corn trait MIR 162. While the U.S. is unlikely to agree to China's demand, the announcement literally blew up the market, causing DDG prices to plummet.

Between China's latest debacle and prediction of a record crop, the DTN weekly DDG spot price average fell a whopping $20 per ton in the past week, from $125 per ton last week to $105 this week. This is the lowest the average has been in almost four years, as the last time the average was at $105 per ton was in mid-August 2010.

The average has now fallen for 17 consecutive weeks and has dropped $134 per ton in that time, from $239 per ton the first week of April to this week's jaw-dropping low of $105 per ton.

Of the 37 Midwestern locations DTN collects spot prices from, 35 reported their prices had decreased between $5 and $40 per ton in the past week. Only one company reported that one of its locations remained unchanged, and one location had no offers this week.

Asking merchandisers what caused their prices to drop this week was certainly a bit of repetition, with "China" serving as the standard answer.

With China, previously the largest buyers of U.S. DDG, now out of the picture, there is a lot of surplus DDG on the market. Adding to the surplus is the good crop last year and good run times/margin at plants.

Most merchandisers agreed that chaos in the market will likely continue until the industry figures out what's going to happen with China and homes are found for all excess product.

The value of DDG relative to corn this week fell from about 97% last week to about 82% this week, the lowest value since January of 2012. In the past year, that value has hovered mostly between 120% and 130%, reaching a high of 141% in late February. The value of DDG relative to soybean meal this week was about 27%.

The cost per unit of protein for DDG was $4.20, compared to the cost per unit of protein for soybean meal at $8.24.

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

(ES)

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