High DDG prices likely to affect exports

News
Aug 3, 2012
by DTN

The skyrocketing prices of dried distillers grains (DDG) recently will likely curb exports, although measuring that decrease will be difficult for many weeks.

According to U.S. Grains Council Manager of International Operations for DDGS Alvaro Cordero, it is difficult to estimate changes in DDG exports at present since the council uses official numbers which are two months behind.

“I have no way to say where we are today in July compared to May,” he said.

There is a definite reduction in closing positions between buyers and sellers, he said. While the discrepancy in prices was around $10, buyers are now asking for larger discounts compared to what the seller wants.

If prices of DDG continue to increase, buyers will be hesitant to pay more unless the price has been secured.

“This makes trade very difficult,” Cordero said. “This extreme volatility makes it very difficult for either side to take a position on purchasing or selling.”

In reviewing data from before the price escalations of the past month, exports in May 2012 were 2 percent higher than 2011.

Cordero sees that as encouraging.

Through May, China was buying 100 percent more DDG than a year ago. Exports to South Korea were up almost 60 percent and South Korea’s purchases were higher as well. Unfortunately, markets in Canada were down 22 percent and Mexico was down 15 percent.

“I would presume it will take a little time for the market to rebound,” he said. “In my opinion, we will have high prices of DDG until the market knows the outcome of this year’s crop. Until then, it will be difficult for stakeholders to make decisions for procurement.”

With skyrocketing corn prices, many ethanol plants are shutting down or scaling back production to protect profit margins as some are actually losing money on each gallon of ethanol they produce.

With industry estimates of as much as a 20 percent decrease in ethanol production, Cordero said he expects to see a slowdown in DDG exports as that will naturally result from lower production of DDG. Less quantity produced, along with continued demand and higher prices will likely have an effect on DDG exports.

“We will have consequences, there is no doubt,” he said.

It may not be necessary for prices to fall back in order for exports to resume, he said.

“My feeling is that once the market understands that we have X price for corn and X price for DDG, that at least will help us to go on,” he said. “Right now, it is difficult to have correct price discovery.”

Because prices were still rallying at the time of this interview, the market may not be seeing the full effect from the decreased production of DDG and how that affects prices and availability, Cordero said.

“The market price needs to settle so that both the buyer and seller can price correctly,” he said. “Not nec essarily higher or lower, but correctly.”

When more accurate pricing occurs and there is better understanding of what the corn market will be and how much availability of DDG there will be, Cordero said he believes exports will resume. Then, buyers can allocate their resources, since they will know the value of DDG in their country.

Through the chaos, the council continues its efforts to promote DDG and other commodities to export markets.

“Despite the volatility in the markets, we have been approaching the marketplaces, as we still have product to allocate. We still have corn and DDG to sell,” he said. “At least in that regard, I would not call a panic to the market place. There is product.”

There is some competition between local and export markets, but there is still product out there to be sold.

“That is a very important message,” Cordero said. “Buyers can find product to buy.” — Cheryl Anderson, DTN

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