OREANDA-NEWS. October 12, 2015. While some may associate the summer with dry spells, for the US dried distillers grains (DDGS) market, the dry spell has come in the fall.

Numerous sources have said that China, the world’s No. 1 importer of DDGS, has stopped purchasing the ethanol byproduct in recent months after buying heavily earlier in the year. That assertion is backed up by data from the US Department of Agriculture. According the USDA, DDGS exports peaked in May at \\$252.016 million, fell off slightly in July, then cratered in August.

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So why the big drop off?  DDGS in the early summer months were selling for 140% to 150% the price of corn, a comparable substitute in animal feeds. And as price continued to rise in June, the Chinese slowed down their purchases. Some reports emerged that the Chinese were cancelling earlier DDGS orders to take advantage of the ensuing dip in DDGS prices. Other reports suggested the Chinese were opting for cheaper corn or soybean meal to use for livestock feed.

By August, China imports had slipped to \\$164.65 million. Sources say that China, despite halting most of its buying activity in late May, still has more than enough product stored in warehouses to fill its needs.

That means US suppliers are looking to domestic demand to pick up some of the slack. Normally, domestic demand begins to pick up in the fall months as the cooler weather settles in. Livestock tend to eat more in the cooler months, and cattle herds begin to be brought out of the pastures and into feedlots for the season. That usually sparks an uptick in domestic demand.

And there are good signs for domestic demand. Corn prices have risen, as the average of CBOT front-month corn futures jumped from \\$3.6771/bushel in August to \\$3.7380/bushel in September. Corn futures settled at \\$3.9575/bushel on October 7. Meanwhile, DDGS prices have slipped steadily from the high \\$190s/mt in May to the mid-\\$130s in October. Now DDGS are at valued at 40% to 50% of corn.

Market sources say they are seeing more and more domestic customers take advantage of the prices and start to incorporate DDGS in livestock diets.

That’s good news for DDGS producers, but most market sources aren’t expecting domestic demand to be enough to make up for the lack of demand from the Chinese.

“Domestic demand can fill some of that hole, but it’s a big hole,” said one Midwest source.