Corn prices led a rally in Chicago, supported by a rise in US ethanol production to a 16-month high, as biofuel plants exploited margins supported by strong Chinese demand for feed byproducts.
US ethanol plants produced 897,000 barrels of ethanol a day last week, a rise of 28,000 barrels a day, and the highest figure since June last year.
"This was a good week," Roy Huckabay, at Chicago broker Linn Group, said, attributing the increase to a spell of strong margins at a time when the US harvest is bringing fresh supplies onstream.
They are making so much, they are going to grind it as fast as they can get it," Mr Huckabay told Agrimoney.com.
Demand for DDGs
The extent of the increase reflects in part the relatively low level of corn prices which, even after rising 1.4% to $4.44 ½ a bushel in late morning deals in Chicago, for December delivery, are well below the highs reached last year, above $6 a bushel, which forced many plants into temporary shutdowns.
However, while ethanol prices have fallen too, biofuel plants' margins are being held up by firm values for products such as distillers' grains, or DDGs, manufactured as a byproduct.
Prices of DDGs, a high protein livestock feed ingredient, have been held up by resilient values of soymeal, an alternative, and by strong demand from buyers in Asia, and particularly China.
"China is taking about 15% of our total DDG production, or about half our exports," Mr Huckabay said.
One appeal of DDGs to the Chinese, who have huge poultry flocks and hog herds to feed, is that it is not subject to tariff rate quotas, as corn is, and attracts a relatively low import duty.
US exports of DDGs are proving strong to other Asian buyers too, including Indonesia, where they rose 42% in the first half of 2013, and Thailand, which recorded a 53% gain.
Shipments to South East Asia overall rose 9%, with declines in Malaysia and the Philippines.
US DDGs came under enhanced scrutiny after the discovery a year ago of insect pests in a container shipment to Vietnam.