COMMODITIES 2025: US policy shifts point toward lower DDGS prices in 2025

This is part of the COMMODITIES 2025 series where our reporters bring to you key themes that will drive commodities markets in 2025.

US distiller dried grains with solubles markets face growing uncertainty from anticipated policy shifts that will take hold in 2025.

DDGS, as well as all products tied closely to the agricultural market, typically mark their calendars more to weather and growing seasons. However, 2025 holds another cycle to follow as the US brings in new governmental leadership that could drastically change the market landscape with policy decisions. The inbound Trump administration has already caused waves for global trade outlooks with comments on fresh tariffs, but domestic policy may have a bigger initial impact for DDGS.

Domestic biofuel policy

On Dec. 17 the US government put forth a proposal for a short-term funding bill to avoid a partial shutdown. The potential bill included language that would expand waivers for fuel blends containing 10-15% ethanol content and allow E15 blended gasoline to be sold year-round on a nationwide basis. Under current regulations, sales of E15 are blocked from June to September. However, as of Dec. 19 the budget extension has not been approved.

A wider rollout of E15 blended fuel will be supportive for ethanol prices, but in the next year it will likely pressure DDGS values lower, according to a source.

"The eight largest producing states already approved year-round sales with little impact to demand and incentivizing more production without creating demand will add supply pressure to the market," said an ethanol producer.

"Second to E15 all eyes are on 45Z, if that doesn't pass, we could see big downside in DDGS," said a DDGS trade source.

The Inflation Reduction Act included Section 45Z as a Clean Fuel Production Credit. The credit would apply to renewable fuel producers on qualifying transportation fuel produced after Dec. 31, 2024 as an incentive to promote "climate-smart agricultural practices." The Biden administration has said that final guidance on 45Z will be issued prior to leaving office on Jan. 20, 2025, but the uncertainty has been difficult for producers and traders to plan around.

At current margin levels and without the enactment of favorable policies, it is likely that we see a reduction in ethanol/DDGS output in the short term, according to a source.

Global trade policy

On a longer timeline, threats to US grain export markets point toward higher domestic corn usage that will increase DDGS supply levels. President-elect Donald Trump has threatened to implement a tariff of 25% on all imports from Mexico as early as Jan. 20, 2025. Mexico is the primary importer of US DDGS, taking an average of 19% of total US exports over the past five years. Mexico is also the second largest buyer of US corn exports.

"With any trade war, it's the farmer who always gets stuck in the middle," said a source.

US DDGS 2024 export sales reached 10.2 million mt through October and are poised to gain on the year, which would break the downward trend for annual volume. With the US forecast to produce another large corn crop, the loss of export demand will weigh on prices and feed into domestic ethanol production. Weaker corn prices and strong ethanol production rates would lead to increased DDGS supply in the US market, which may also face fresh barriers for exports in any sort of retaliation to tariffs.

Competition from soybean meal

"I see cheap soybean meal as the biggest threat to DDGS values. The world will have lots of cheap meal at its disposal until the next crop cycle," said a source.

Growth in the US biofuel sector has led to increased production of domestic soybean meal. Stronger competition in the global market from rising Brazilian production and export sales to China point to growing US soybean stocks. In a trade war scenario, Commodity Insights analysts forecast US soybean exports in MY 2025-26 at 1.2 billion bu, down 30.6% on the year, while production is seen near steady at 4.44 billion bu. Over 2024 US DDGS and soybean meal prices saw a similar 26% decline, but a sharper decline forecast in soybean prices could create a relative cost value for soybean meal as feed buyers look to fill their rations.