Ethanol coproduct feed prices have increased since the beginning of the year, albeit not to the record prices posted in August 2012 when corn price peaked. Prices for dried distillers grains plus solubes (DDGS) were about $258/ton in South Dakota last week, up $4/ton since the first week of January. Similarly, wet distillers grains plus solubes (WDGS) prices were $3/ton higher, averaging $95.25/ton. Modified wet distillers grains plus solubes (MWDGS) prices have risen more than $7/ton since the beginning of the year to average $143/ton last week. On a dry matter (DM) basis, coproduct prices have increased $4.51/ton, $15.30/ton, and $9.29/ton since the beginning of the year for DDGS, MWDGS, and WDGS, respectively.
While coproduct feed prices are not as volatile as some commodity prices, they do still tend to exhibit variability over time and seasonal trends are hard to identify. The seasonal indices of South Dakota DDGS, MWDGS, and WDGS prices shown in Figure 1 have a fairly wide standard deviation, but the average seasonal index shown for each of the products is still useful in assessing market conditions and planning future purchases. Note that prices from 2008-2012 have seasonally peaked in the third week of January, and DDGS and MWDGS generally decline about 4% through the twelfth week of the year (about the end of March). While WDGS seasonally increase through about the tenth week of the year, they have historically found a Spring-time bottom during the eleventh or twelfth week of the year. Coproduct prices seasonally tend to increase through the end of June before moving to their annual low in the late summer months.
It appears so far that 2013 may be one of those years that doesn’t follow the seasonal trend very closely. Instead of decreasing about 4% since the beginning of the year, DDGS have increased 1% since the third week of January and MWDGS and WDGS prices have increased 3%. Since their highs posted the second week of February, DDGS prices have only declined 2% and MWDGS and WDGS have remained about steady.
Another way to examine ethanol coproduct prices is to compare their price relative to corn on a DM basis. As shown in Figure 2, coproduct prices have been increasing relative to corn during the past couple of months. Currently, DDGS and MWDGS prices are about 96% of corn price (DM basis), while WDGS price is 91% of corn price. The previous six-year average for this time of March is about 84% for DDGS and 72% for MWDGS and WDGS.
The nominal price strength and stronger-than-normal price relative to corn is attributable to a couple of factors. First, ethanol production, and therefore coproduct production, has been lower this winter due to high corn prices. In January and February, ethanol production nationally was below 800,000 barrels per day, compared to over 920,000 barrels per day last year. Although ethanol production has rebounded in recent weeks due to improved margins, accumulated production since the beginning of the marketing year is well below year-ago levels. In fact, USDA projects only about 4.5 billion bushels of corn will be ground for ethanol in the 2012/13 marketing year, compared to over 5 billion bushels in the 2011/12 marketing year. That roughly equates to 4.25 million tons less distillers grain production during the current marketing year.
A second factor contributing to coproduct price strength is the high price for feedstuffs this winter. Due to the 2012 drought, corn, hay, wheat pasture, and other forage resources were in short supply heading into winter, leading to record or near-record high prices for most livestock feeds. Even with relatively steady livestock numbers (lower cattle inventory and small growth in pork and poultry numbers), the tight supply of feedstuffs has increased prices across the board. Further, increased snow cover in recent weeks across the Great Plains has increased demand for supplemental feed for cow herds.
The outlook for ethanol coproduct prices for the spring and summer months mirrors that of the corn market. With tight ending stocks for the 2012/13 marketing year (ending August 31, 2013), corn prices, and therefore coproduct prices, will be well-supported for the remainder of the old crop months. However, with a potentially large 2013 crop production swelling supplies for the next marketing year (weather permitting), prices for both corn and coproducts will decrease when new-crop supplies become available this fall. So, to some extent, feed buyers will want to ‘hold out’ for new crop supplies that are about eight months away. In the meantime, though, they can take advantage of the inverse carry in the corn market that makes basis and cash bids lower in each successive deferred month. Likely, it will only be weather scares that impact corn acreage and yields for 2013 that will increase prices this spring and summer. And, at some point it is likely to happen, so buying up to four to six weeks’ feed supplies on short-term price breaks would help insult from some of these price risks. Coproduct feed buyers can expect distillers grain prices to remain relatively high-priced compared with corn, staying above 90% of corn price (DM basis) as alternative feeds are in short supply and are high priced.
Figure 1. Seasonal Index of Co-Product Prices, South Dakota 2008-2012
Figure 2. DDGS, MDGS, and WDGS as a Percent of Corn Price, Dry Matter Basis, South Dakota 2007-2013
Source: Darrell Mark
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