DTN Weekly DDG Update

DDG Prices Plummet Amid China Trade Disruptions

DAVENPORT, Neb. (DTN) -- Recent trade disruptions with China are due to the actions of individual companies, not the Chinese government, but U.S. traders still need to be cautious in future trade of dried distillers grains to China, market experts say.

News reports have surfaced in the past week citing rumors that China has cancelled two shipments of DDG and is considering cancelling more in the future. The reports sparked fear in the U.S. market, causing U.S. DDG prices to plummet as much as $30 per ton in the past week to 10 days.

Merchandisers reported to DTN price declines of between $10 and $30 per ton in the past two week, causing the DTN weekly spot price average to plummet a total of $24 per ton, from $155 per ton on June 5 to this week's average of $135. This is the lowest point the average has reached since the first week of December 2014.

After the volatility in the U.S. DDG market caused by China ceasing all imports of U.S. DDG until the country approved the MIR 162 biotech trait, many in the industry are wondering just what the next trade disruptions with China will bring.

According to Kurt Shultz, director of global strategies for the U.S. Grains Council, there have been some contract cancellations and rollovers that have occurred, but it is not the Chinese government that is cancelling or stopping shipments.

"It's not a governmental action, it is individual company actions that have occurred," Shultz said.

Some Chinese traders have overbought DDG and wish to delay shipments. The drop in DDG prices and some oversupply are also causing some Chinese traders to renegotiate contracts.

"They're saying 'yes, we still want DDG, but we want to try and negotiate it at a lower price,'" Shultz said.

Some in the industry believe that China may be attempting to sell off some of its surplus corn by cancelling or renegotiating shipments of DDG from the U.S.

In contrast to the latest USDA data which pegs Chinese corn stocks in the neighborhood of 80 million metric tons, some in the industry feel that their stockpiles could be as high as 120-150 mmt, according to Joel Karlin, contributing DTN market analyst and commodity manager for Western Milling in Goshen, California. This amount is equal to 50% to 65% of China's own annual production.

There are also rumors that the condition of much of China's corn surplus is not in good condition.

"A good amount of this corn was produced years ago and may be going out of condition," Karlin said. "So it may be that Chinese authorities are limiting not only DDG imports, but market reports have them limiting sorghum and barley imports also."

China's impending bumper corn crop could result in decreased DDG imports in the near future.

"It appears that China may be on their way to producing another massive corn crop, and that combined with their weakest economic growth in a generation could result in a much lower amount of DDG imported than seen over the past few months," Karlin said. "In fact, the estimates for their imports of soybeans and soybean meal are forecast as a much lower percent increase than seen in many years."

Schulz said this large corn crop is making Chinese importers nervous, especially since they don't know what the government policies may be.

"There's actually been a case of one importer actually asking for new-crop DDG in order to get their shipments earlier because they want to make sure they're in the market before there's any action by the Chinese government," he said.

Karlin said that DDG price decreases can also be attributed to a drop in soybean meal future to new contract lows.

"There are also rumors that China is trying to wash out of some earlier-purchased soybean meal of both U.S. and South American origin," Karlin said. "This would be linked to even cheaper prices that are available now and continued declines in the Chinese hog population."

Overall, Shultz advised U.S. DDG traders to be wary.

"We're in a very volatile situation right now," he said. "I think from the U.S. industry side, you just have to expect a volatile situation with the Chinese market right now."

Shultz said that the industry is naturally wary after all the trade problems with China in the past couple years.

"This is not as bad as last year, but I think caution lights are up on the Chinese market," he said. "Just be careful because nobody knows exactly what's going to happen. It's going to be a volatile situation between now and September, or even further than that."

The U.S. Grains Council is monitoring the situation and is hopeful that DDG imports to China will continue. Shultz added that the council believes the industry needs to be aware that the situation does create other buying opportunities.

"There are a lot of international buyers outside of China that sat on the sidelines because of prices," he said. "There is a market for DDG internationally. They just may not be aware."

The UGC is trying to educate international customers about buying U.S. DDG and what a good buying opportunity there is currently. With good DDG supplies in the U.S., Shultz said the council will continue to monitor the situation with China and try to ensure there is minimal trade disruption.

Shultz pointed out that the UGC continues its efforts to promote distillers grains worldwide. In fact, he is in Southeast Asia currently talking to buyers in Vietnam and Thailand.

He said that buyers are very interested in U.S. DDG and hopes they see the pricing occurring in the U.S. as an opportunity to buy. He encouraged DDG sellers to reach out to old buyers that they may not have talked to in a while and re-engage them.

Overall, Shultz said, he believes the industry needs to be cautiously optimistic.

"China is the number one market for distillers grains. We don't currently see any reason they won't continue to import, but diversification is a good thing," he said.

Although the industry is obviously very nervous right now with prices falling, Shultz stressed that the industry needs to remember that the market has not shut down in China. The recent trade activity that has happened is more along the lines of re-negotiations and contracts being rolled forward.

"The market picked up last year when China stepped out," he said. "I think now there are enough other buyers out there that will step up -- maybe not as fast because they haven't been in the market in the last three months.

"We need to get those buyers back in the market," Shultz said.

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

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IN THE NEWS

Conference: Aquaculture Must Diversify Feed Ingredients

Aquaculture is one of the fastest-growing industries in the world, as pressure on wild fish stocks rises to meet the demand of a billion people who rely on fish as their primary protein source. In fact, a recent study concluded that aquaculture production must grow as much as 100% by 2030 to satisfy demand.

According to an article by the U.S. Grains Council (http://bit.ly/…), this growth in the aquaculture industry encourages diversification in feed ingredients, including dried distillers grains with solubles, and presents an opportunity for U.S. DDGS producers.

The council recently held a conference in Singapore to explore long-term options for the industry there, since Asia accounts for nearly 90% of the world's aquaculture production.

Kevin Roepke, the council's regional director of South and Southeast Asia, was quoted in the council's newsletter as saying the aquaculture industry "needs to move on from using large amounts of rendered wild fish for feeds and transition to using a suite of plant-based proteins and ingredients sources."

Roepke's message was that instead of using fish meal, which is the primary protein source, the industry should use imported U.S. feed ingredients.

"It's a case study in comparative advantage," Roepke said in the article. "Yet the challenge facing the industry is finding a production system that is environmentally friendly, consumer-oriented and economically viable."

Challenges for the growing industry include sustainability, as the traditional commodity protein source, trash fish, has a poor environmental track record amid concerns about overfishing. Trash fish are often immature fish that could be commercially caught if allowed to grow larger.

Roepke commented, "Fish is the world's most valuable exported food commodity with a total worth greater than that of corn, soybeans and beef combined. Its role in achieving global food security cannot be overlooked."

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DTN WEEKLY DDG SPOT PRICES

CURRENT PREVIOUS
COMPANY STATE 6/19/2015 6/12/2015 CHANGE
Bartlett and Company, Kansas City, MO (816-753-6300)
Missouri Dry $160 $170 -$10
Modified $70 $75 -$5
CHS, Minneapolis, MN (800-769-1066)
Illinois Dry $145 $170 -$25
Indiana Dry $145 $170 -$25
Iowa Dry $145 $165 -$20
Michigan Dry $145 $165 -$20
Minnesota Dry $135 $155 -$20
North Dakota Dry $125 $155 -$30
New York Dry $145 $155 -$10
South Dakota Dry $125 $155 -$30
MGP Ingredients, Atchison, KS (800-255-0302 Ext. 5253)
Kansas Dry $125 $150 -$25
POET Nutrition, Sioux Falls, SD (888-327-8799)
Indiana Dry $150 $160 -$10
Iowa Dry $125 $158 -$33
Michigan Dry $150 $160 -$10
Minnesota Dry $130 $160 -$30
Missouri Dry $150 $175 -$25
Ohio Dry $150 $155 -$5
South Dakota Dry $125 $150 -$25
United BioEnergy, Wichita, KS (316-616-3521)
Kansas Dry $135 $170 -$35
Wet $40 $40 $0
Illinois Dry $155 $185 -$30
Nebraska Dry $135 $170 -$35
Wet $40 $40 $0
U.S. Commodities, Minneapolis, MN (888-293-1640)
Illinois Dry $150 $170 -$20
Indiana Dry $140 $165 -$25
Iowa Dry $130 $155 -$25
Michigan Dry $135 $160 -$25
Minnesota Dry $130 $150 -$20
Nebraska Dry $120 $145 -$25
New York Dry $150 $160 -$10
North Dakota Dry $120 $150 -$30
Ohio Dry $135 $160 -$25
South Dakota Dry $120 $145 -$25
Wisconsin Dry $145 $155 -$10
Valero Energy Corp., San Antonio, TX (402-727-5300)
Indiana Dry $130 $150 -$20
Iowa Dry $125 $145 -$20
Minnesota Dry $125 $150 -$25
Nebraska Dry $120 $150 -$30
Ohio Dry $140 $160 -$20
South Dakota Dry $120 $150 -$30
Western Milling, Goshen, California (559-302-1074)
California Dry $205 $225 -$20
*Prices listed per ton.
Weekly Average $135 $159 -$24
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 6/18/2015 $3.5800 $127.86
Soybean Meal 6/18/2015 $326.60
DDG Weekly Average Spot Price $135.00
DDG Value Relative to: 6/19 6/12 6/5
Corn 105.59% 124.88% 122.48%
Soybean Meal 41.33% 50.73% 52.01%
Cost Per Unit of Protein:
DDG $5.40 $6.36 $6.36
Soybean Meal $6.88 $6.60 $6.44
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 (June 12, 2015)

Dried Modified Wet
FOB PLANT PRICES PER TON
Iowa 130.00-160.00 60.00-75.00 42.00-47.00
Minnesota 145.00-160.00 65.00 43.00-50.00
Nebraska 135.00-150.00 50.00-77.00 40.00-52.00
South Dakota 138.00-155.00 70.00-74.00 45.00-50.00
Wisconsin 160.00-190.00 70.00-80.00 NQ
Eastern Corn Belt 150.00-180.00 65.00-77.00 NQ
Kansas 150.00-175.00 NQ 45.00-58.00
Northern Missouri 150.00-185.00 NQ 45.00-55.00
DELIVERED PRICES PER TON
CIF NOLA 168.00-184.00
Pacific Northwest 175.00-198.00
California 175.00-205.00
Texas Border (metric ton) 215.00-230.00
Lethbridge AB 150.00
Chicago 145.00-180.00

Dried Distillers Grain: 10% Moisture

Modified Wet Distillers: 50-55% Moisture

Wet Distillers Grains: 65-70% Moisture

CALIFORNIA WHOLESALE FEEDSTUFF PRICES (Tue Jun 16, 2015)

Distillers Dry Grains

  Rail to California Points         192.00-218.00    dn 9.00-up 7.00
  FOB Truck to California Points    210.00-235.00    dn 10.00-up 15.00

PACIFIC NORTHWEST WEEKLY FEEDSTUFFS (Tue Jun 16, 2015)

Distillers Dried Grains: Offers for Distillers Dried Grains delivered in September by rail to feed mills in the Pacific Northwest were steady to 10.00 lower from 195.00-210.00. Offers for distillers dried grains trans-loaded onto trucks and delivered to Willamette Valley dairies were steady to 10.00 lower from 213.00-225.00.

*All prices quoted per ton unless otherwise noted.

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NASS/USDA MONTHLY CO-PRODUCTS PRODUCTION

Dry and Wet Mill, Co-products and Products Produced - United States

February 2015 - April 2015

Jun 1, 2015

Highlights:

Dry mill co-product production of distillers dried grains with solubles (DDGS) was 1.69 million tons during April 2015, down 7 percent from March 2015 but up 3 percent from February 2015. Distillers wet grains (DWG) 65 percent or more moisture was 1.20 million tons in April 2015, down 5 percent from March 2015 but up 5 percent from February 2015.

Wet mill corn gluten feed production was 313.9 thousand tons during April 2015, down 5 percent from March 2015 but up 11 percent from February 2015. Wet corn gluten feed 40 to 60 percent moisture was 314.0 thousand tons in April 2015, up 2 percent from March 2015 and up 14 percent from February 2015.

Co-products and Products Feb 2015 Mar 2015 Apr 2015
Dry Mill tons
Condensed distillers solubles (CDS-syrup) 128,057 163,713 139,930
Corn oil 96,347 107,141 102,610
Distillers dried grains (DDG) 405,025 438,728 411,664
Distillers dried grains with solubles (DDGS) 1,649,534 1,810,473 1,690,903
Modified distillers wet grains (DWG) <65% moisture 1,144,177 1,264,104 1,200,282
Modified distillers wet grains (DWG) 40-64% moisture 421,666 498,977 389,889
Wet Mill
Corn germ meal 48,546 57,439 61,922
Corn gluten feed 283,990 331,547 313,889
Corn gluten meal 80,855 93,078 89,356
Corn oil 41,020 42,684 42,998
Wet corn gluten feed 40-60% moisture 274,763 308,444 314,047

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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.)
5/22/15 96411 9899 1833 108143 5700658
5/29/15 96709 9930 1839 108478 5718308
6/05/15 98699 10134 1877 110710 5835968
6/12/15 97505 10012 1854 109371 5765372

*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/SK)

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