DTN Weekly Distillers Grains Update

DDG Market Factors to Watch in 2015: Relationships With China, FSMA

DAVENPORT, Neb. (DTN) -- The outlook for dried distillers grains in 2015 will likely be characterized by how trade resumes with China, as well as how the new Food Safety Modernization Act affects ethanol producers, according to industry experts.

The past year was one of volatile relations with China, over the country's rejection and subsequent approval of Syngenta's Agrisure Viptera (MIR 162) biotech trait, which caused huge disruptions in dried distillers grains trade.

There was widespread speculation that China's actions were largely politically motivated, and while DDG trade with China is slowly resuming in 2015, it may take some time to rebuild trust and heal relations, according to Jason Charles, domestic export trader for Land O'Lakes Purina Feed LLC in Minneapolis.

Syngenta announced Dec. 22 it received formal approval for imports of DDG with the trait, but the trust of Chinese traders is not something that will be recovered immediately, Charles said. U.S. companies are going to be very cautious about trade with China.

U.S. suppliers are now trying to protect themselves against losses; some reportedly require large down payments on all shipments to China. A class-action lawsuit against Syngenta is in the works, arguing that company should not have sold the MIR 162 trait in corn to farmers before it was approved in China, and that Syngenta failed to inform U.S. farmers planting the seed with the trait that their crops might not be marketable there.

"The rejection of MIR 162 for strictly political reasons caused a lot of problems for middle-sized companies, loaders and small grains companies, costing them millions and millions of dollar," Charles said. "These companies will be very cautious and vigilant in dealing with China."

OTHER TRENDS TO WATCH

Another big issue for 2015 will be the Food Safety Modernization Act, according to Kurt Rosentrater, executive director of the Distillers Grains Technology Council and professor at Iowa State University's Department of Agricultural and Biosystems Engineering. The second comment period for the revised rule for good manufacturing practices has closed and the U.S. Food and Drug Administration is reviewing comments.

Rosentrater said ethanol producers will need to do some due diligence with their facilities to make sure they comply with the new regulations.

"It will be interesting to see, once the final rule is published, how the ethanol industry will be affected and what requirements ethanol producers will need to do," Rosentrater said.

Another industry trend will be continued development on processes to extract valuable co-products such as proteins and fiber from distillers grains.

"Oil removal came into the industry rapidly, but now companies are moving forward on some newer fractionation products, such as extracting and fermenting the fiber in distillers, as well as new products made from extracting protein," Rosentrater said. "The fractionation story is not over yet. Oil removal has been successful, and now new technologies are becoming commercially viable to remove fiber and protein. We will see more of that happening."

MILK INDUSTRY CHALLENGES

The industry will also need to keep an eye on the dairy sector, which could be a big challenge with milk at $15 per hundredweight, lower than breakeven level. Continuing low milk prices could lead to fewer domestic livestock, Charles said.

"If we stay at these price levels, production will go down. Dairy farmers will feed less of everything in order to mitigate that loss," Charles said. "Instead of pumping in rations to achieve maximum performance, they will do something different until prices come back up."

Competition with soybean meal and canola meal will also be a factor to watch.

FUTURE MARKETS

Charles said he believes the market will be very bearish, at least 90 days into spring weather and new crops. He said the feed and grain sector will also likely be bearish, barring any inclement spring weather.

"With another good-to-average crop in the Northern Hemisphere in 2015, we will continue this bear market and continue to add to global supplies, which will continue to cheapen prices," Charles said.

Ample global feed stocks will also likely lead to bearish commodities and grains, he said. With countries in the Southern Hemisphere predicted to have record corn and soybean crops, Charles expects overly-ample stocks of corn, soybean and wheat. He advised everyone to keep an eye on global stocks, which are at the point of being burdensome.

Charles said he believes DDG prices are nearing their high point.

DTN Senior Analyst Darin Newsom believes prices could still move higher, as corn prices have drifted lower during the winter quarter, possibly setting the stage for a more bullish spring quarter.

"As producers head back to the fields and corn and DDG export business heats up, merchandisers will have to push harder to source cash supplies to meet demand," Newsom said. "If corn prices start to work higher, and more cattle start to show up in placements in the winter and spring, DDG prices could also start to move higher."

DTN Ethanol Analyst Rick Kment said although the market tone remains bearish because of potential bearishness in the grain sector, the focus will be on the balance between possible lower DDG supplies and recently heated-up DDG demand and prices.

"If ethanol margins continue to remain weak through the spring and summer, given the low energy prices, there is expected to be a pullback in ethanol production. This also means a pullback in DDG prices," Kment said. "The fact that DDG prices have rallied through the fourth quarter of the year, as demand has heated up, may create some additional uncertainty about how much additional support can be seen in the market at current corn and soybean meal prices."

Kment said since corn and soybean meal prices set the standard by which all co-product feeds are priced, a strong shift higher in grain markets could limit the potential DDG price gains.

DDG SUPPLIES READILY AVAILABLE

As long as corn is readily available, Charles said he expects DDG supplies to be readily available as well. "As long as we can continue to move ethanol, distillers will move as well," he said.

Exports may return to average expectations, except for China.

"I don't anticipate exponential growth in demand from China in this calendar year, as it will take some rebuilding with U.S. exporters," he said. "We need to revitalize container trade to China and get that trust back. We need to continue upward momentum. Revitalization will bullishly impact the distillers trade."

ADVICE FOR END USERS

Charles said he advises livestock producers to just buy hand-to-mouth for the coming months, then look at factors such as spring weather, how many acres of corn and soybeans are planted, and how well the Brazilian and Argentine harvests turn out.

"If I was an end user, I would buy hand-to-mouth through March 1, then nothing else until we have more information on the global grain situation, production, acres, etc.," he said.

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With the majority of ethanol plants now removing corn oil from their DDG, Rosentrater advised livestock producers to be more aware that the DDG they buy has lower oil content and do what they need to do to make DDG work in their rations.

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

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IN THE NEWS

U.S. DDG Exporters Cautious

China has now officially accepted the Syngenta MIR 162 (Agrisure Viptera) biotech trait and is reportedly seeking U.S. corn and dried distillers grains with solubles, but U.S. sellers will justifiably be cautious, according to an article by Ethanol Producers (http://bit.ly/…).

Randy Ives, director of ethanol services for Gavilon, stressed that U.S. DDG marketers will likely be careful to manage risk regarding trade with China, largely due to issues with trade from the past year.

In December 2013, China began to reject shipments of U.S. corn with the trait, and rejection of DDG soon followed, causing prices to plummet. In August 2014, a new demand required all shipments of DDG to be accompanied by official certification it was MIR 162-free; however, the U.S. refused the requirement, since no certification existed. After that, DDG trade with China came to a standstill and DDG prices dipped to their lowest point in more than five years.

Although Syngenta received official documents of MIR 162 approval from China Dec. 22, trust was broken and U.S. companies lost millions of dollars. A class-action lawsuit against Syngenta claims, based on estimates from the National Grain and Feed Association, the U.S. corn market has lost between $1 billion and $2.9 billion because of issues relating to China.

In any case, U.S. companies are likely to be very cautious about resuming trade with China, and accepted the December announcement with the intentions of not taking additional risks. Some are possibly requiring large down payments on shipments to China, in order to protect themselves.

Ives pointed out that when China stopped buying U.S. DDGS, buyers in other countries came to the table, began purchasing and have continued since.

Some traders are also wary that because of past history, the acceptance of MIR 162 will not be a solution for all trade issues with China.

"There are other problems, other barriers, in play yet," Ives said in the Ethanol Producer article. "We're still trying to figure out what the running rules are and what other technicalities we will have to abide by."

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

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DTN WEEKLY DDG SPOT PRICES

CURRENT PREVIOUS
COMPANY STATE 1/23/2014 1/16/2014 CHANGE
Bartlett and Company, Kansas City, MO (816-753-6300)
Missouri Dry $190 $190 $0
Modified $90 $90 $0
CHS, Minneapolis, MN (800-769-1066)
Illinois Dry $185 $185 $0
Indiana Dry $195 $190 $5
Iowa Dry $185 $180 $5
Michigan Dry $190 $180 $10
Minnesota Dry $160 $160 $0
North Dakota Dry $170 $175 -$5
New York Dry $200 $205 -$5
South Dakota Dry $175 $175 $0
MGP Ingredients, Atchison, KS (800-255-0302 Ext. 5253)
Kansas Dry $185 $180 $5
POET Nutrition, Sioux Falls, SD (888-327-8799)
Indiana Dry $170 $170 $0
Iowa Dry $175 $160 $15
Michigan Dry $175 $175 $0
Minnesota Dry $165 $160 $5
Missouri Dry $195 $195 $0
Ohio Dry $170 $165 $5
South Dakota Dry $170 $160 $10
United BioEnergy, Wichita, KS (316-616-3521)
Kansas Dry $195 $185 $10
Wet $75 $75 $0
Illinois Dry $190 $185 $5
Nebraska Dry $195 $185 $10
Wet $75 $75 $0
U.S. Commodities, Minneapolis, MN (888-293-1640)
Illinois Dry $180 $180 $0
Indiana Dry $185 $185 $0
Iowa Dry $175 $175 $0
Michigan Dry $185 $185 $0
Minnesota Dry $160 $160 $0
Nebraska Dry $175 $170 $5
New York Dry $200 $210 -$10
North Dakota Dry $185 $180 $5
Ohio Dry $185 $185 $0
South Dakota Dry $175 $175 $0
Wisconsin Dry $180 $180 $0
Valero Energy Corp., San Antonio, TX (402-727-5300)
Indiana Dry $180 $180 $0
Iowa Dry $170 $170 $0
Minnesota Dry $160 $160 $0
Nebraska Dry $175 $175 $0
Ohio Dry $180 $185 -$5
South Dakota Dry $155 $155 $0
Western Milling, Goshen, California (559-302-1074)
California Dry $255 $245 $10
*Prices listed per ton.
Weekly Average $178 $176 $2
The weekly average prices above reflect only those companies DTN
collects spot prices from. States include: Missouri, Iowa, Nebraska,
Kansas, Illinois, Minnesota, North Dakota, South Dakota, Michigan,
Wisconsin and Indiana. Prices for Pennsylvania, New York and
California are not included in the averages.

*The spot prices gathered by DTN are only intended to reflect general market trends and may vary. Please contact individual plant or merchandiser for exact prices.

If you would be willing to take a weekly phone call and have your distiller grains spot prices listed in this feature, please contact Cheryl Anderson at (308) 224-1527 or (800) 369-7875, or e-mail cheryl.anderson@dtn.com.

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VALUE OF DDG VS. CORN & SOYBEAN MEAL
Settlement Price: Quote Date Bushel Short Ton
Corn 1/23/2015 $3.8675 $138.13
Soybean Meal 1/23/2015 $331.50
DDG Weekly Average Spot Price $178.00
DDG Value Relative to: 1/23 1/16 1/9
Corn 128.87% 129.68% 121.45%
Soybean Meal 53.70% 53.87% 47.33%
Cost Per Unit of Protein:
DDG $7.12 $7.04 $6.84
Soybean Meal $6.98 $6.88 $7.61
Notes:
Corn and soybean prices taken from DTN Market Quotes. DDG
price represents the average spot price from Midwest
companies collected on Thursday afternoons. Soybean meal
cost per unit of protein is cost per ton divided by 47.5.
DDG cost per unit of protein is cost per ton divided by 25.

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USDA MARKET NEWS/DISTILLER GRAINS PRICES

USDA WEEKLY DISTILLERS GRAINS SUMMARY (Jan 16, 2015)

Dried Modified Wet
FOB PLANT PRICES PER TON
Iowa 160.00-185.00 70.00-85.00 45.00-49.00
Minnesota 155.00-165.00 75.00 55.00-60.00
Nebraska 164.00-183.00 65.00-85.00 48.00-65.00
South Dakota 155.00-170.00 75.00-83.00 52.00-60.00
Wisconsin 160.00-185.00 72.00-85.00 NQ
Eastern Corn Belt 165.00-205.00 70.00-85.00 NQ
Kansas 175.00-205.00 NQ 58.00-68.00
Northern Missouri 183.00-200.00 NQ 63.00-69.00
DELIVERED PRICES PER TON
CIF NOLA 240.00-255.00
Pacific Northwest 243.00-248.00
California 238.00-251.00
Texas Border (metric ton) 270.00-285.00
Lethbridge AB 225.00
Chicago 195.00-208.00

Dried Distillers Grain: 10% Moisture

Modified Wet Distillers: 50-55% Moisture

Wet Distillers Grains: 65-70% Moisture

CALIFORNIA GRAIN AND FEED REPORT (Fri Jan 16, 2014)

Distillers Dry Grains (includes fuel)

CURRENT LAST REPORT LAST YEAR
Jan 15, 2015 Jan 8, 2015 Jan. 16, 2014
Rail to California Points

259.00

Trade 238.00

230.00-240.00 271.00
FOB Truck to California Points 252.00-261.00 238.00-250.00 268.00

PACIFIC NORTHWEST WEEKLY FEEDSTUFFS (Tue Jan 20, 2015)

Distillers Dried Grains: Offers for Distillers Dried Grains delivered in September by rail to feed mills in the Pacific Northwest were 2.00 to 29.00 higher from 254.00-260.00. Offers for distillers dried grains trans-loaded onto trucks and delivered to Willamette Valley dairies were also 2.00 to 29.00 higher from 272.00-275.00.

*All prices quoted per ton unless otherwise noted.

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RFA WEEKLY U.S. LIVESTOCK FEED PRODUCTION

CO-PRODUCT OUTPUTS (metric tons)
Week Ending Distillers Grains Corn Gluten Feed Corn Gluten Meal Total Feed Corn Oil (lbs.)
12/26/14 96055 9930 1839 107823 5718308
1/02/15 94421 9695 1795 105911 5582998
1/09/15 97306 9991 1850 109148 5753606
1/16/15 97406 10002 1852 109259 5759489

*Information from 2010 Weekly U.S. Fuel Ethanol/Livestock Feed Production report (http://www.ethanolrfa.org/…)

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DDG LINKS/RESOURCES

Organizations

*Distillers Grains Technology Council

http://www.distillersgrains.org

*National Corn Growers Association Corn Distillers Grains Brochure

http://ncga.com/…

*Iowa Corn

http://www.iowacorn.org/…

Nebraska Corn Board

http://www.nebraskacorn.org/…

*Renewable Fuels Association - Ethanol Co-Products

http://www.ethanolrfa.org/…

*American Coalition for Ethanol

http://www.ethanol.org/…

*U.S. Grains Council

http://www.grains.org/…

*South Dakota Corn Utilization Council

http://www.drieddistillersgrains.com

Government Sites

*Iowa Department of Agriculture and Land Stewardship/Office of Renewable Fuels & Coproducts

http://www.distillersgrains.com

University Sites

*University of Minnesota - Distillers Grains By-Products in Livestock

and Poultry Feed

http://www.ddgs.umn.edu

*University of Illinois - Illinois Livestock Integrated Focus Team Distillers Grains site

http://ilift.traill.uiuc.edu/…

*University of Nebraska - Beef Cattle Production By-Product Feeds site

http://beef.unl.edu/…

*University of Nebraska Extension

http://ianrpubs.unl.edu/…

*Iowa Beef Center - Iowa State University

http://www.iowabeefcenter.org/…

*University of Missouri - Byproducts Resource Page

http://agebb.missouri.edu/…

*South Dakota State University - Dairy Science Department - Dairy cattle research

http://dairysci.sdstate.edu/…

(select "Distillers Grains" from the topic menu)

*Purdue University Renewable Energy Web Site

http://www.extension.purdue.edu/…

(select "Biofuels Co-Products from the menu)

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DDG CONFERENCES

If you are sponsoring or know of any event, conference or workshop on distillers grains, and would like to list it in the DTN Weekly Distillers Grains Update, please contact Cheryl Anderson (see contact info below).

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We welcome any comments/suggestions for this feature. Please let us know what information is valuable to you that we could include in the Distillers Grains Weekly Update. Please feel free to contact Cheryl Anderson at (402) 364-2183, or e-mail cheryl.anderson@dtn.com.

(AG)

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