China's political climate biggest impact on DDGS pricing

As Memorial Day approaches, all eyes are on planting progress.  DDGS prices have been falling lately in conjunction with corn, as pastures start to green up and cattle start to leave the feedlot. Ethanol margins look pretty rosy for the next couple of quarters, so distillers grain production does not look as though it will be an issue. But demand could.

On a domestic basis, demand overall looks good. Meat and milk producers have a pretty good profitability curve and should be looking at locking in some margins. We have not yet seen a full-scale adoption of that process yet but feeders have been cutting their inbound commodity pipeline pretty close lately, which will be a hard habit to change. It has been a while since feeding margins have been present in the quarter ahead.

In the export market, China is the one to watch. There were almost a million tons exported there in March and any noticeable drops so far for April and May have not been felt. There is still the MIR 162 “elephant in the room” (China denied U.S. corn in November 2013 after finding corn with this unapproved trait) but there has not been any news out of Beijing lately as to whether a non-approved genetically modified organism ban will be enforced in DDGS. Obviously, any move like that will take a lot of steam out of prices.

Looking ahead, China and corn planting will be the focus to determine pricing. The logistical issues that tightened the market all winter are abating but still not back to normal. In the end, though, the political climate in China is going to affect the market the most.

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