Commodities: Logistics problems, demand equal tight DDGS supply

By Sean Broderick, CHS | March 27, 2014

With March Madness upon us, and spring hopefully not too far past that, a look back at the last month can be summarized with one word: Logistics. Railroads encountered a myriad of shipment problems due to cold, snow and overcapacity. This has been an ongoing issue west of the Mississippi but the weather really had a severe impact on the Chicago gateway and the rail lines leading to the East Coast. A lot of the ethanol had been heading east from the Midwest plants and the major rail issues that had been impacting dried distillers grains with soluables (DDGS) all winter in the West were now affecting the ethanol movements to the East as well. Consequently, plant run times slowed dramatically. If onsite storage tanks are full and empty cars are not getting back to the plant in time, there’s no choice but to slow down.

DDGS demand has been steady. The West Coast market has been primarily spot business and new container demand in Chicago has dropped off dramatically. A lot of tons had already been booked in December for the first and second quarters of 2014 and most of what is being traded now is paper trading, which is mostly for convenience of logistics. The slowdown in ethanol production, even though it was a small amount on a year over year basis, had a big impact on DDGS availability, and there was significant difficulty getting enough DDGS cars into Chicago. That tightness does look to continue into April and probably May. In spite of that, prices have been sluggish, as there is no new demand until the third and fourth quarters of 2014. More deferred time frame trade is starting to be seen, at levels around 115 to 120 percent the value of local corn.

Looking ahead, the hope of nicer weather bodes well for improved run times and rail movements, particularly in the eastern U.S. The western U.S. will still suffer though, as it is going to be tough to catch up with all of the rail demand that exists out there. There are still going to be contracted DDGS tons that will need to be fulfilled in the second quarter, but the demand and the market pricing generally weakens as the weather gets warmer. All eyes will be on planting conditions and DDGS as a percentage of corn will be influenced by what happens in the next two months. Another factor is what China decides about whether or not to take U.S. corn.

  DDGS prices ($/ton)

               May  2014          April    2014          May 2013   

MN               240             180                  235

Chicago        260                 225                  270

Buffalo         260                 220                  258

CA               330                 280                  305

FL                292                 262                  296

A version of this commodities report will appear in the June issue of Ethanol Producer Magazine.