Feed weekly outlook: DDGS market to adjust with E15 move

MarketsFarm — The prospect of higher-ethanol gasoline blends year-round in the U.S., and a likely increase in production of the renewable fuel, would also result in more distillers dried grains (DDGS) looking for a home in global livestock feed channels.

However, that won’t mean an oversupply of the ethanol byproduct, as feed markets will adjust, according to a DDGS trader.

The U.S. Environmental Protection Agency (EPA) is moving forward with a proposal which would see an end to restrictions on selling E15 — gasoline containing 15 per cent ethanol — in the summer.

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The higher-ethanol-content fuel currently faces sales restrictions from June through September in some areas due to concerns it adds to smog in warmer temperatures.

The U.S. ethanol and corn sectors both support the move to allowing E15 year round, as corn is the primary feedstock in the U.S.

“There won’t be an oversupply of DDGS,” said Sean Broderick, DDGS marketing manager with CHS Hedging. The same question had been asked for decades as the ethanol sector grew, with the market always adjusting, he said.

DDGS replaces both corn and soymeal in a ration, he noted, with increased supplies possibly leading to more DDGS in rations and less corn.

Canada imported about 660,000 tonnes of U.S. DDGS in 2018, according to Statistics Canada data, down slightly from the record of 694,000 tonnes the previous year.

Broderick said Canada was a steady market, with Canadian demand dependent on the quality of the Canadian grain crop.

Overall, the U.S. exported 11.8 million tonnes of DDGS in 2018, up by nearly eight per cent from the previous year, according to U.S. Census Bureau data.

China has been a major buyer in the past, but the trade dispute between the two countries has caused disruptions.

“The entire market is sitting on its hands waiting to see what happens, if anything, with China,” said Broderick.

Logistical issues across the Midwest, with a late winter and heavy snow in some areas, were also being watched closely.

— Phil Franz-Warkentin writes for MarketsFarm, a Glacier FarmMedia division specializing in grain and commodity market analysis and reporting.

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