October 14, 2011

 

Canada's farmers limit DDGS usage

 

 

Canadian livestock producers are limiting the usage of DDGS from the US because of ample domestic feed grain supplies and high cost of the ethanol by-product, according to market participants.

 

The price spread is too wide right now to bring in DDGS, said Ryan Slozka, senior commodity trader with Rycom Trading Inc., a major Canadian importer of US DDGS.

 

There will always be feeders who will see the advantage of using DDGS in a small percentage of their rations, as it does create some benefits in terms of digestibility, but at present, he said, "the volumes are significantly down."

 

US DDGS today are priced at about CAD260 (US$254.34) per tonne in the key Lethbridge, Alta. feeding area, about 24% above domestic barley at CAD210 (US$205.43) per tonne, said Slozka. With the harvest finished in Western Canada, barley prices are moving up, while DDGS prices hold steady.

 

"We're on the cusp of finding the middle ground," said Slozka, noting that DDGS become an economical choice when the price difference between barley and the higher priced DDGS hits 20% or lower.

 

While even a slight reduction in DDGS prices would make it more economical to include in Canadian rations, a decline looks unlikely, given the supply/demand fundamentals in the US

 

A huge shortage of feed in the southern US, due to drought, should keep corn and DDGS prices underpinned, Slozka said.

 

Canadian feeders "are still using (DDGS), but just not at the volumes they typically do," he said, adding that imports will likely be down on the year.

 

Sean Broderick, DDGS manager with CHS Inc., a US based DDGS exporter, agreed shipments to Canada will likely be smaller this year due to the fact Canada's own domestic feed situation is not that tight.

 

From a pricing standpoint, he said, supplies of DDGS are artificially tight right now, with many ethanol producers extending their seasonal downtimes longer than normal.

 

While the likelihood of increased supplies after the US Thanksgiving holiday could put some pressure on prices, Broderick said good profits in the livestock sector will keep the demand solid as well.