Floods Hinder DDG Transport

Recent flooding has wreaked havoc with transportation of dried distillers grains and those problems may persist, Sean Broderick, senior merchandiser for CHS in Minneapolis, said in an interview with DTN.

"Flood levels on the Missouri River are going to be a longer-lasting issue than what we thought even a week ago," Broderick said. "Flooding is tying up railcars moving to the Pacific Northwest and California. That will create more local supply because of the difficulty in moving railcars."

Flooding in many areas is making logistics difficult for many ethanol plants.

"We haven't had any plants that have actually been flooded, but the logistics in and out are affected," Broderick said. "We have a couple plants that have had the rail lines on both sides flooded out."

Flooding has especially presented a problem for some plants in North Dakota, he said. Burlington Northern just closed its main thoroughfare in Minot, N.D. Some plants that had been looking to ship barges down river have been delayed by locks that are being closed due to flooding.

Prices of dried distillers grains have hovered above $200 per ton since mid-May, with a spike to $206 two weeks ago followed by a drop to $201 last week.

Broderick said there are several factors that have played into prices remaining above $200 per ton, which is especially significant during summer months when more cattle are typically on pasture and fewer feedlot placements result in lower DDG demand and lower DDG prices.

First, the higher fat content of DDG was putting it into diets that required energy, particularly single-stomach animals like hogs and poultry. That resulted in a lot of DDG moving from west to east, and that movement still continues, Broderick said.

Secondly, corn basis in the east -- particularly in states east of Chicago such as Indiana, Ohio and farther east -- shot to the upside. Distillers grains followed that uptrend, as more demand was seen from eastern states such as the Delaware, Maryland and Virginia -- areas with large hog and poultry operations.

Also, many areas in Texas are experiencing a severe drought, leaving pastures and grasslands dry and unproductive. With no pasture or hay, more cattle have been placed in feedyards, increasing demand for DDG in those areas, he said.

All three of those factors, as well as soaring corn futures, have kept DDG prices above $200 per ton, Broderick said.

"When corn went up to $8 a bushel, distillers was slow to react," he said. "Now it's slow to react coming down, even though corn has come back down about $1 per bushel."

While domestic demand has remained good, export demand has been trading mostly via the container markets. Bulk demand is low, nowhere near what it was last year, mostly because of vessel freight increases in the U.S.-to-Asia routes, due both to Chinese fertilizer movement to South America and India, and a substantial increase in cost of fuel.

"If you look at overall exports, we are probably only down 5%, but bulk shipments are down almost 70%," he said. "That's significant. But it also tells you how much the container market is picking up the slack."

Supplies may be running slightly tight in some areas, although supplies are looking up in some states.
　
Another factor in future DDG prices and demand will be the outcome of European crops. Last year, Europe saw a very small wheat crop, and crops in Russia and eastern and central Europe were way off. Although this year's crops look a little better, Europe's harvest will influence export DDG demand from Mediterranean areas, he said.

Also still a factor will be the outcome of the anti-dumping case China filed against the U.S. regarding DDG exports. Some resolution of that case is expected in the next couple months.

Livestock producers needing to purchase DDG supplies will want to keep an eye on prices later this summer.

"Generally, the August/September timeframe is the best time to buy distillers," he said. "That is when there is the least amount of cattle demand. That puts pressure on the wet market, which in turn creates more dry supply."