Since late last summer, corn prices have fallen dramatically, but distiller’s dried grains with solubles (DDGS) prices have not.
“While corn prices at South Dakota ethanol plants have dropped $1.50 per bushel since Aug. 2, DDGS prices have actually increased by $1.05 per ton,” says Darrell Mark, adjunct professor of economics at South Dakota State University.
Mark adds that prices for modified distiller’s grains plus solubles (MDGS) and wet distiller’s grains plus solubles (WDGS) have only declined by $13.50 per ton and $6 per ton, respectively.
“The result is that distiller’s grain prices have increased dramatically relative to corn prices in recent months,” he says.
During the week of Christmas, DDGS prices were trading at 138% of the corn price in South Dakota, while MDGS and WDGS were priced at 114-115% of the corn price (on a dry matter basis). Typically, the price ratio would be around 85-90%.
Mark explains that the distiller’s grain to corn price ratio increases when supplies (production) of distiller’s grains decreases or demand for distiller’s grains increases.
“The current increase in the distiller’s grain to corn price ratio is driven by demand increases, not supply decreases. In fact, good ethanol processing margins in the last two months have led to increases in ethanol production, and consequently distiller’s grain production,” he says.
Since mid-November, estimated distiller’s grain production has averaged about 12% higher than a year ago.
What's driving demand?
Two sources are driving the increase in distiller’s grain demand.
“First, soybean meal prices have increased almost $55 per ton since harvest, driving up the cost of protein for poultry and swine feed rations. As a result, these industries look for other protein sources like distiller’s grains to substitute for soybean meal, thereby increasing demand for distiller’s grains,” Mark says.
He adds that the second reason is the fact that export demand for distiller’s grains has increased substantially, particularly to China.
“Note that both the poultry/swine feeding demand and export demand would be primarily for DDGS (not the wetter MDGS and WDGS products), which has seen the largest price increase relative to corn,” he says.
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