Value of U.S. DDGS Exports Fall, Prices Improve
By S. Patricia Batres-Marquez
Decision Innovation Solutions
The main co-product of corn ethanol plants is distillers grains. Based on the level of moisture content, distillers grains can be marketed as wet, modified, or dried. Among all these co-products, distillers dried grains with solubles (DDGS) is the number one commodity. Data from USDA-NASS indicates DDGS production during the first six months of the marketing year (September 2017-February 2018) was equal to 10.5 million metric tons (MT), down 2.9 percent from the same period last year (10.8 million MT). Yet DDGS continued as the leading co-product of corn ethanol production (see Figure 1). Production of distillers dried grains excluding solubles (DDG-excluding solubles) stayed about the same as in the first half of the 2016/17 marketing year with 2.3 million MT. Production of wet distillers grains with 65 percent or more moisture content was up 4.1% to 7.4 million MT during the first half of the 2017/18 marketing year relative to the same period the previous year (7.1 million MT). Production of wet distillers grains with moisture content between 40 to 64 percent was up 16.1 percent to 2.6 million MT during September 2017 through February 2018 relative to the same period the preceding marketing year.
Wet distillers grains are more perishable than dried distillers grains, so they are mainly delivered to livestock operations near ethanol plants. The longer shelf life of distillers dried grains allows this co-product to be delivered to long-distance livestock operations and international markets.
Figure 1. U.S. Distillers Grains Production (First Six Months of Marketing Year 2015/16, 2016/17, and 2017/18)
U.S. DDGS Exports: September 2017 - February 2018
Based on USDA-NASS data by type of distillers grains produced and USDA-FAS U.S. distillers dried grains (DDG) export data, which includes both DDGS and DDG-excluding solubles, exports during the first half of the 2015/16, 2016/17, and 2017/18 marketing years averaged 44 percent of total distillers dried grains production. (On average, 82 percent of distillers dried grains production is in the form of DDGS, so for this report, the phrase “DDGS exports” will include both DDGS and DDG excluding solubles exports.)
U.S. DDGS exports from September 2016 to February 2017 were up 1.9 percent to a volume of 5.8 million MT compared with 5.7 in the previous year. However, during the first six months of the current marketing year, exports declined 4.9 percent to 5.5 million MT year over year (see Figure 2). This reflects the 2.9 percent contraction of DDGS production during September 2017 to February 2018.
Figure 2. U.S. Distillers Dried Grains with Solubles Exports (First Six Months of Marketing Year 2015/16, 2016/17, and 2017/18)
Despite the overall decline in U.S. DDGS exports during the first six months of the current marketing year, DDGS continued as an important part of the global feed market, with DDGS exports to some markets growing during that period.
Mexico has been the leading market for U.S. DDGS since 2016/17, after the dramatic fall of U.S. DDGS exports to China, due to China’s enforcement of anti-dumping duties on U.S. DDGS in January 2017. During the first six months of the 2016/17 marketing year, U.S. DDGS exports to Mexico surged 9.0 percent compared with the first six months of the 2015/16 marketing year. Exports to Mexico represented 19.9 percent of total exports during the current marketing year (September 2017 to February 2018) and were up 6.3 percent to 1.094 million MT from 1.029 million MT during the same time in 2016/17 (see Figure 3). U.S. trade with Mexico has the advantage of preferential trade conditions through the North American Free Trade Agreement, which are enhanced by Mexico’s geographical proximity to the United States.
Boosted by preferential trade terms under the U.S.-South Korea Free Trade Agreement, South Korea was the second largest importer of U.S. DDGS during the first half of the 2017/18 marketing year, with exports up 6.8 percent to 536,359 MT and a 9.7 percent share of U.S. DDGS total exports. This trend started last year, when South Korea was the second largest market for U.S. DDGS importing 502,225 MT.
Other markets with increased purchases of U.S. DDGS during the first half of the current marketing year were Indonesia, Canada, and Japan. Indonesia’s purchases grew by 218,184 MT (102.4 percent) to 431,295 MT (see Figure 3). Canada and Japan imports increased to 326,466 MT (15.5 percent) and 223,892 MT (2.6 percent) compared with the first half of 2016/17, respectively.
Although U.S. DDGS exports to Vietnam, Turkey, and Thailand experienced some reduction in the first half of 2017/18 compared to 2016/17 (see Figure 3), these markets were the third, fourth, and fifth largest markets for U.S. DDGS during that period. Imports of U.S. DDGS by these three countries combined reached a volume of 1.358 million MT during 2017/18 (September to February). Purchases by each of these three countries surpassed their corresponding purchases during the first half of 2015/16 (see Figure 3).
As Figure 3 shows, during the first six months of 2015/16 U.S. DDGS exports to China were equal to 1.837 million MT compared with 82,292 MT during the same period of 2017/18. This indicates a reduction of 1.755 million MT (95.5 percent).
U.S. DDGS exports to the rest of the world (ROW) were up 7.2 percent to 1.035 from September 2017 to February 2018 year over year. Exports to ROW represented 18.8 percent of the total volume exported during the first half of the 2017/18 marketing year. Increasing U.S. DDGS exports to ROW in 2016/17 and 2017/18 (see Figure 3) reflects the abundance of U.S. DDGS supplies at low prices left by the reduction of U.S. DDGS exports to China.
Figure 3. U.S. DDGS Exports to Top Ten Markets (First Six Months of Marketing Year 2015/16, 2016/17 and 2017/18)
Value of U.S. DDGS Exports Fell at Slower Pace than Volume
U.S. DDGS prices were measured as a unit value for U.S. DDGS in the export market computed as total expenditures on U.S. DDGS divided by total volume of U.S. DDGS exported from September 2015 to February 2018 (see Figure 4).
U.S. DDGS prices started to recover at the beginning of the 2017/18 marketing year (see Figure 4 and 5) after plummeting and falling below those of corn when China imposed the anti-dumping duties on U.S. DDGS in January 2017. In May 2017, U.S. DDGS price was 11.8 percent ($20.7/MT) below corn’s price (see Figure 5).
The volume of U.S. DDGS exports during the first six months of the 2016/17 marketing year increased 1.9 percent to 5.8 million MT year over year (see Figure 6), while the value of those exports declined 11.7 percent to $1.04 billion due to lower prices, relative to the same period a year earlier. During the first half of the 2017/18 marketing year, the volume of U.S. DDGS exports dropped 4.9 percent to 5.5 million MT (see Figure 6) and the export value declined 3.4 percent to $1.00 billion. With U.S. DDGS prices starting to recover (see Figure 4 and 5), the value of exports did not decline as much with the lower volume of exports.
Figure 4. U.S. DDGS Export and Export Market Prices (September 2015 to February 2018)
Figure 5. U.S. DDGS and Corn Prices (Unit Value in the Export Market) (September 2015 to February 2018)
Figure 6. U.S. DDGS Exports: Volume and Value (First Six Months of the Marketing Years 2015/16, 2016/17, 2017/18)
The decline of U.S. DDGS imports by China had an adverse effect on the U.S. DDGS market by leaving a large surplus at lower prices. This contributed to an increased import demand by Mexico, South Korea, Vietnam, Turkey, Thailand, Indonesia, and EU. Exports outside the top 10 markets for U.S. DDGS also increased substantially.
Prices during the first half of the 2017/18 marketing year started to rebound to levels seen before China’s enforcement of tariffs, but remained about 18.0 percent below September 2015 prices. On the other hand, volumes continued below pre-tariffs levels. This is due, in part, to lower production during the first six months of the current marketing year. U.S. DDGS production may increase during the second half of the marketing year. The April 2018 forecast from USDA indicated a 2.6 percent increase in ethanol production during the 2017/18 marketing year compared with 2016/17. With an expected increase in DDGS production during the second half of the 2017/18 marketing year, prices may drop.
Batres-Marquez, S. Patricia. 2018. “Value of U.S. DDGS Exports Falls, Prices Improve." Renewable Energy Report, Agricultural Marketing Resource Center, Iowa State University. April 2018.
 ROW= rest of the world includes U.S. DDGS exports to all countries excluding Mexico, South Korea, Vietnam, Turkey, Indonesia, European Union, Canada, Japan, and China.