DDG prices trek higher still
June 2, 2009
OMAHA (DTN) – The spring of 2009 is leaving livestock producers wondering just when the price of dried distillers grain is going to begin its typical seasonal decline, or even if it’s going to fall at all.
Corn prices have rallied, and since DDG prices typically mirror the corn board, DDG prices have risen too. The beginning of spring typically signifies the movement of cattle off feedlots onto pasture, decreasing the need for rations and the demand for DDGs. But while ample rains have greened up pastures for grazing, this spring has been anything but typical. The price of DDGs has risen steadily since late March. In the spot prices that DTN tracks, DDG prices have risen from an average of $125 on March 27 to an average of $139 on May 21.
Prices of DDGs at MGP Ingredients in Atchison, Kan., have moved up steadily, according to Phil Intfen, manager of grain procurement. MGP’s price this week has risen $5 since last week, Intfen said, mostly due to the corn market.
Corn futures have rallied about 49 cents since the first week in April, according to DTN Analyst John Sanow.
“With the uncertainty surrounding a shift in acres resulting from ongoing planting delays, the rally should be able to continue,” Sanow said. “The seasonal index indicates that futures typically rally into mid-June; however, it will be limited by bearish underlying fundamentals evidenced by the strong carry in the July-to-September futures spread.”
According to DTN’s Six Factor Analysis, the first target for the July contract is around $4.46. If planting progress continues to be slow, especially in key states like Indiana and Illinois, the market could rally beyond that.
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Soybean meal is one of the most bullish markets in the commodity complex and often competes with DDGs for place in livestock rations.
“Both short-term and long-term trends are pointing higher,” Sanow said of the soybean meal market. “Noncommercial (speculative) traders are holding a net-long futures position and adding to it.”
Finally, futures spreads are inverted all the way out to July 2010, indicating bullish underlying fundamentals in the soybean meal market. Seasonally, the market tends to rally through early July with the initial price target now around $415 on the nearby contract.
In spite of corn’s and soybean meal’s influence on rising DDG prices, demand has been holding up fairly well, Intfen said.
“We thought by this time demand would have dropped off, but it hasn’t,” he said.
He added that supplies, at least for MGP’s plant, have been fairly good. Although not all U.S. plants are back at full capacity yet, MGP’s plant has been running at 100 percent capacity in recent weeks.
As for coming weeks, Intfen said he believes that will depend on the corn market.
“As long as the corn market remains steady, DDG prices will hold up,” he said. “I don’t think we will see any drop-off yet.”