CHICAGO, Feb 9 (Reuters) – U.S. supplies of animal feed are so plentiful that cash discounts to futures for soymeal fell to their widest level in at least 17 years this month and distillers’ dried grains (DDGs) are selling at their lowest prices in more than two years.
While speculators in the futures market have focused on potential damage to South American crops from bad weather, cash markets are sliding as soymeal, prized for its superior protein content, loses ground to rivals like DDGs, a by-product of milling corn into ethanol.
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“You are going to push distillers’ as hard as you can, because it saves quite a bit of money,” said Shelly Tiede, a swine nutritionist with Minnesota-based Ralco Nutrition who advises hog producers on what to feed their herds.
Cash prices for DDGs have fallen below $100 a ton in some areas for the first time in more than two years as supplies soar on the back of record ethanol production in the past two months. At the same time, China, once a major buyer, slapped punitive tariffs on imported DDGs, curbing demand.
“We are just swimming in it, between dry distillers and wet mill. We have been grinding so much corn,” said Todd Hubbs, an assistant professor of agricultural commodity markets at the University of Illinois.
To compete, processors who crush soybeans and sell the resulting soymeal and soyoil have offered historically steep discounts against futures, which have risen as speculators have focused on potential crop damage in South America.
The basis – the differential between cash and futures prices – for soymeal in the Decatur, Illinois, rail market last week fell to $22 a ton below the spot CBOT futures price, the lowest for that location in Reuters data through the year 2000. In the Mankato, Minnesota, truck market, the basis hit $44 per ton below CBOT futures, also the lowest on record.
Cash market players point to fundamentals there and warn futures may follow.
“It just feels like maybe the cash market is a little ahead of the futures market,” Doane Advisory Services analyst Bill Nelson said.
Soymeal futures on the Chicago Board of Trade closed Wednesday near $340 a ton, up about eight percent since the start of the year, and the March contract hit a six-month high in January above $350 a ton after floods hit parts of Argentina, the world’s top soymeal exporter.
Speculators have piled in and managed funds held a net long, or bought, position in CBOT soymeal of roughly 68,000 contracts as of Jan. 24, their largest since June, weekly data from the U.S. Commodity Futures Trading Commission showed.
Last year, late-season weather problems clipped South American soy harvests, sending spot CBOT soybeans up to $12 a bushel by early June, from $8.50 in early March. But this year, production forecasts for Argentina and Brazil are rising and that could put pressure on futures prices.
Cash sellers of soymeal should benefit if that happens.
“As the board goes down, we will see more interest,” a cash soymeal broker said, adding, “it has got to buy its way back into formulas.”
