While the US is the top producer of corn and soybeans, big growth is expected from South American harvests and ethanol, biodiesel and DDGS markets are already seeing the effects. Wes Swift examines how falling corn futures are lifting US ethanol crush margins and soybean oil prices are down — welcome news for biodiesel producers. The prices for dried distillers grains, a co-product of ethanol production, are also seeing increased competition among other livestock feed ingredients.
Video Transcript
US ethanol, biodiesel, DDGS markets feel impact of larger South American harvests
By Wes Swift, associate editor, agriculture
Welcome to the Snapshot, a series examining the forces shaping and driving global commodities markets today.
The upcoming corn and soybean crops in South America are shaping up to have large impacts on the US biofuels markets.
Global harvests for soybeans and corn expected to reach record levels
The global harvests for both soybeans and corn are expected to reach record levels. And while that poses some big benefits for biofuels, it also presents some challenges.
While the US is the top producer of both crops, the bulk of the growth this year comes from South America, particularly Brazil and Argentina. After heavy rains threatened the growing regions in both countries earlier in the growing season, harvesting is in full swing now. And recent reports from those countries indicate that the crops will exceed the previous estimates by the US Department of Agriculture, which already forecast record global crops.
The USDA recently revised its production estimates upward, pushing corn and soybean futures prices downward in recent weeks. At the same time, one of the biggest grains importers, China, has curbed its purchase of corn. This has added further downward pressure on prices.
For US ethanol producers, the falling corn futures have helped push crush margins higher in late February and early March, from a low of 10 cents on March 7 to more than 20 cents two weeks later. That’s allowed ethanol producers to maintain high production rates prior to the upcoming maintenance season.
For US biodiesel producers, the bumper crop of soybean has meant a sharp downturn in feedstock prices. Front-month futures for soybean oil, the primary feedstock for biodiesel production in the United States, fell for eight straight trading sessions in the last two weeks, falling to a 31.85 cents-a-pound, the lowest level since September 14 of last year.
That’s welcome news for biodiesel producers, who have seen a lack of buying in the spot market due to the expired blenders tax credit and poor blending economics. However, the bean oil-to-heating oil ratio still remains around 80 cents, meaning that producing a gallon of SME biodiesel costs at least 80 cents more than buying a gallon of ultra-low sulfur diesel fuel.
Further complicating the issues: Prices for dried distillers grains, a co-product of ethanol production and used as a livestock feed, already seeing low prices due to dwindling export demand, are getting battered. With the prices of competing feed ingredients of corn and soybean meal falling due to swelling harvests, DDGS prices could fall even lower. And with low corn prices helping to prop up ethanol production, supplies of DDGS aren’t expected to drop soon.
Until next time on the Snapshot, we’ll keep an eye on the markets.