Analysts with USDA's Economic Research Service released a methodology last week for estimating supply and consumption of distillers grains (DGs), so that supply and demand can be better determined, thus leading to more accurate price discovery, hopefully. In their conclusion to the report “Market Issues and Prospects for U.S. Distillers’ Grains Supply, Use, and Price Relationships,” the authors say:

“Corn and soybean meal prices are important determinants of dried DG prices and may explain why some producers rely on corn and soybean meal futures prices to establish dry DG prices, or why some producers use corn and soybean meal futures as a risk management tool. Another dry DG price discovery and risk management tool has become available with the initiation of a futures contract on April 26, 2010 for distillers’ grain at the CME Group.

“Average prices of dry DGs for most the past four marketing years (2006-07-2009-10) are now running at a discount to corn compared with an average premium prior to the surge (May 1995 through August 2006) in DG production. As dry DGs increasingly became an energy feed, soybean meal prices lost some of their connection to dry DGs prices. Perhaps the increased seasonality of dry DGs prices could contribute to the explanation of this trend. Corn, dry DGs, modified DGs, and wet DGs’ regional price relationships need further analysis to better explain their differences and behaviors over time.”
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For information on using distiller grains futures for risk protection, go to