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Price Spread Limiting DDGS Usage In Canada

COMMODITY NEWS SERVICE CANADA

Ample domestic feed grain supplies together with high prices for corn-based DDGS (dried distillers grains with solubles) from the U.S. are currently limiting usage of the ethanol byproduct in Canadian livestock rations, according to market participants.

The price spread is too wide right now, said Ryan Slozka, senior commodity trader with Rycom Trading Inc., a major Canadian importer of American DDGS. While some feeders find an advantage of using a small percentage of DDGS in their rations, as it does create some benefits in terms of digestibility, volumes are significantly down.

Currently, U.S. DDGS are priced at about $260 per tonne in the key Lethbridge feeding area, compared to $210 per tonne a 24 per ent gap for domestic barley, said Slozka. But 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.

DDGS becomes an economical choice when the price difference between barley and the higher-priced DDGS narrows to 20 per cent or less, he said.

While even a slight reduction in DDGS prices would make it more economical to include in Canadian rations, a decline is looking unlikely given the supply/demand fundamentals in the U.S. There is a huge shortage of feed in the southern U.S., due to drought, and that should underpin corn and DDGS prices, said Slozka. Canadian feeders are still using (DDGS), but just not at the volumes they typically do, said Slozka.

Sean Broderick, DDGS manager with CHS Inc., a U.S.-based DDGS exporter, agreed shipments to Canada will likely be smaller this year because Canada s own domestic feed situation is not that tight. He said supplies of DDGS are artificially tight right now because many ethanol producers are extending their seasonal downtimes longer than normal. Supplies are expected to increase after the U.S. Thanksgiving holiday, but strong profits in the livestock sector will keep the demand solid as well, he said.

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Phil Franz-Warkentin - MarketsFarm

Phil Franz-Warkentin writes for MarketsFarm specializing in grain and commodity market reporting.

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