In the last two months, distillers grains prices have counter-seasonally decreased. Typically, prices for dried distillers grains plus solubles (DDGS), wet distillers grains plus solubles (WDGS), and modified distillers grains plus solubles (MDGS) in South Dakota increase during May and June. This year, though, DDGS prices have fallen more than $93/ton in the last two months and more than $125/ton since its spring high in late March. Last week’s average price for DDGS in South Dakota was $116.88/ton.
Similarly, WDGS and MDGS prices are $32-33/ton lower than at the beginning of May, with weekly average prices of $35.25/ton and $65.88/ton, respectively. Several factors have contributed to the decline in distillers grains prices in May and June. First, ethanol production has increased from about 900,000 barrels per day at the beginning of May to about 950,000 barrels per day by the end of June. Therefore, distillers grains production increased from about 88,949 metric tons per day to about 94,819 metric tons per day, a 6.6% increase in quantity supplied. The decline in soybean meal prices during the month of June also contributed to lower distillers grains prices. July 2014 soybean meal futures declined $59/ton from $506/ton at the beginning of June to $447/ton at the end of last week.
Although nutritional characteristics of the two feedstuffs are different, they both are used as protein sources in livestock rations. Thus, as substitutes, a lower soybean meal price leads to lower demand for distillers grains.
Another factor that significantly contributed to the decline in distillers grains prices was the ban that China placed on imports of U.S. distillers grains due to presence of a genetically modified trait not approved by China for import. China, the largest buyer of distillers grains in the world, was sharply increasing its imports of distillers grains in recent months to support its livestock industry. On June 9, 2014, China announced it would not issue import permits for U.S. distillers grains. However, its largest port had stopped issuing new permits during May.
The distillers grains price reaction was almost immediate in the U.S. Average DDGS prices in South Dakota dropped by $14/ton in the week following the news of the export ban. DDGS prices are now $60/ton lower since the Chinese import ban was announced. Of course, corn prices have also fallen sharply in the last two months.
Corn prices paid by ethanol plants have dropped about $0.70/bu since the beginning of May. While lower corn prices generally translate into lower absolute prices for distillers grains, the decline in distillers grains prices due to the factors discussed above is proportionally larger than the decline in corn prices.