Will distillers grains prices seasonally decline in August?

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While the market for distillers grains is characterized by several atypical price changes and counterseasonal trends due to the number of outside factors driving ethanol coproduct prices, a defined seasonal pattern for lower distillers grain prices in the month of August does exist – particularly for dried distillers grains plus solubles (DDGS) and modified distillers grains plus solubles (MDGS). Based on price data over the last five years, DDGS and MDGS prices in South Dakota seasonally decline about 3% from the beginning of August until the end of August, generally reaching a seasonal low in early September. Again, that’s the seasonal (i.e., ‘normal’) trend, but notable exceptions do exist when prices have made sharp counter-seasonal increases during the month of August (e.g., 2010 and 2012).

Currently, DDGS and MDGS prices are trading at about $214/ton and $115/ton, respectively, in South Dakota. Should a 3% price decline this August, that would imply prices close to $208/ton and $112/ton by the end of the month. Interestingly, DDGS and MDGS prices have declined almost $50/ton and $30/ton, respectively, since late-March. While another $3-7/ton decrease is possible next month, it also could be that coproduct prices have bottomed early this summer, having traded at relatively stable prices since mid-May.

The seasonal trend in coproduct prices is often driven by demand factors, specifically, the number of cattle on feed. Because the cattle feedyard inventory is typically lowest in the late summer, coproduct prices often reach a seasonal low in August or September. When cattle on feed numbers are higher in the winter months, so too are coproduct prices. This year, though, coproduct prices appear to have been more heavily influenced by supply, which is governed by ethanol plants processing corn into ethanol fuel and feed coproducts. For about the first three months of the year, the grind margin for ethanol plants was unprofitable and, as a result, many plants shut down or operated at reduced production rates while fuel blenders relied on large accumulated stocks. From April through mid-July, ethanol processing margins improved and ethanol plant production increased dramatically, thereby increasing coproduct feed production since fuel and feed are produced in fixed proportions in ethanol plants. As a result, coproduct prices were relatively high for the first three months of the year and significantly declined during April, May, and June.

In the last couple of weeks, ethanol plant processing margins have eroded and are in the red again. Given the outlook for corn prices being much lower when new crop supplies become available in a couple months, it is possible that ethanol plants may shut down for maintenance work or at least operate at lower production rates in the next month or so as they wait for new crop corn. If that occurs, coproduct production will drop and prices could increase.

Another factor that could keep coproduct prices from decreasing is high soybean meal prices. Since late April, soybean meal prices rallied over $150/ton due to strong demand and tight soybean supplies. A key reversal in soybean meal prices occurred last week, along with several limit-down trading dates in the soybean meal futures market, with nearby August losing $52.10/ton last week. While a large soybean crop this fall will likely alleviate the tight soybean meal supplies and result in lower prices, soybean processers have not secured all the soybeans they need for the next two months. This will underpin support in the soybean meal market and therefore the distillers grain market.

With the prospects for positive ethanol processing margins this fall when cheaper new crop corn becomes available, ethanol production and therefore coproduct production will likely increase this fall. This should improve availability of coproduct feeds and lower prices for livestock feeders. Therefore, livestock feeders should be able to wait until October to consider securing future coproduct supplies or hedging prices. However, coproduct buyers should carefully examine locking in their supplies and price level for the next two to three months. While the prospect for larger supplies of new crop corn and soybeans should temper any large coproduct price increases in the next couple of months, possible plant shut-downs and strength in soybean meal prices are likely to prevent DDGS and MDGS prices from moving much lower in the weeks to come.


The information in this report is believed to be reliable and correct.  However, no guarantee or warranty is provided for its accuracy or completeness. This information is provided exclusively for educational purposes and any action or inaction or decisions made as the result of reading this material is solely the responsibility of readers. The author and South Dakota State University disclaim any responsibility for loss associated with the use of this information. There is substantial risk of loss in trading commodity futures contracts and traders should consult their brokers for a full disclosure of these risks to determine whether such trading is suitable for them in light of their circumstances and financial resources.


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