Ethanol Blog

Worries over the recent action by some Chinese importers of dried distillers grains caused prices to plummet as much as $35 per ton last week in some locations.

The DTN weekly DDG spot price average took a giant fall in two weeks, decreasing a total of $24 per ton, from $159 per ton on June 5 to $135 per ton last week. This marks the ninth consecutive week the average has fallen, dropping a total of $50 since mid-April. This week's average is also the lowest point it has reached since mid-December 2014.

All 36 Midwestern locations DTN collects spot prices from reported their spot prices had increased between $5 per ton and $35 per ton in the past two weeks, although most price increases were in the $10 to $35 per ton price range. No price decreases were reported for the past two weeks.

Merchandisers told DTN this week they attribute most of the price plunge to the worries over the Chinese DDG market. Since China is the larger buyer of U.S. DDG, the loss of that market presents a huge dilemma for exporters. The trade disruptions are not due to governmental sanctions, but have been attributed mostly to individual companies that have overbought DDG and wish to delay shipments. Some companies, which have bought U.S. DDG at higher prices, are now cancelling or rolling over shipments, or attempting to renegotiate contracts at lower prices. One merchandiser even reported one Chinese company that had bought DDG at much higher prices now attempting to sell it back.

In any case, fears over the trade disruptions, coupled with some surplus supplies of DDG building up in the U.S. resulted in huge price decreases. Another factor in the price plunge is that the excessive amount of rain received in many areas is causing some issues with flooding around St. Louis and some difficulty in loading barges for shipment down the Mississippi River.

The typical seasonal decline in domestic demand is also at play, as those ample spring rains have led to green, lush pastures. With more cattle out on pasture, producers have less need to purchase feed ingredients like DDG.

The good news is that the lower prices have renewed domestic demand for DDG, along with some additional demand from other DDG-importing countries.

The lower DDG prices have certainly improved the value of DDG relative to corn, which dropped from nearly 125% three weeks ago to about 106% last week. This should assist DDG in finding its way back into rations. The value of DDG relative to soybean meal also dropped from about 51% two weeks prior to about 41% last week.

The cost per unit of protein for DDG was at about $5.40 last week, compared to the cost per unit of protein at about $6.88.

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

(ES)

© Copyright 2015 DTN/The Progressive Farmer. All rights reserved.