November 28, 2022

Corn price and Dry Distiller’s Grains tend to move in the same direction. There are years when this is the exception, including 2017 and 2020. Examining weekly Kansas City corn price data and 10% Dry Distillers Grain price data from May 2006 through March 2022, the correlation between the two price series is 0.86 , indicating DDG and corn prices tend to move in the same direction.

A regression analysis was performed on the data to find out which price series indicate a relationship with DDG. The weekly price of Kansas high-protein soybean meal, the price of Kansas corn, a weekly variable indicating seasonality, and a variable indicating year were included in the analysis. The model with the best fit, which explained 81% of the DDG price variability, included all variables. The results show that when the Kansas City corn price changes 1%, the Kansas DDG price changes 0.77%. Therefore, a $0.10 per bushel change in the 2021 Kansas City corn price results in a $1.82 per ton change in the Kansas DDG price. These results are similar, albeit somewhat less variable, to those found by Michael Langemeier using Central Illinois prices.

With a view to 2023, forecast corn and soybean meal prices must be used to determine the DDG prices. Using Chicago Board of Trade futures prices for 2023, corn prices will range between $6.25 and $7.00 per bushel, while soybean meal prices will range between $380 and $410 per ton DDG prices in Kansas will be between $250 and $280 per ton.

To understand how these price changes affect profitability, it is necessary to understand the crowding-out relationship between corn and DDGs. There are wide variations in these ratios depending on location and complexity of diet. For example, Kirk Klasing found that adding 30% DDGs to the beef diet displaces about 24% of the corn in the upland diet, but only about 2% of the corn in the West, where the diet is diverse. How much the fluctuations in the price of DDG affect profitability depends on the lowest-cost ration used.

The markets

The November WASDE report will be released on Wednesday 9th November. Trading is likely to slow in anticipation of the report. The corn harvest is likely to be close to 85% by the afternoon of the November 7th crop progress report. The biggest problem is that river traffic continues to face challenges in transporting corn and soybeans.

Demand for beef was strong. Fed cattle prices started the week on a strong note, with live cattle contracts rising. Packers need cattle. Choice Beef’s cutout closed at $263.75 last Friday, up $2.54 on the week. The estimated total harvest last week was 667,000 heads, down 1,000 heads from the week before. Forage cattle volume has declined, particularly in the most drought-affected areas of the country.

Source: University of Wisconsin-River Falls

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