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.