Livestock operations with a nearby ethanol plant have had the opportunity for an alternative feed supply to compete with higher-priced corn and soybean meal in recent years.
While that seemed like a slam-dunk to help feed budgets, a recent decline in ethanol production due to reduced demand by the motoring public has diminished the supply of dried distillers’ grains with solubles (DDGS).
The product has provided much more promise in recent years than when first introduced, but will certainly be one of those commodities that is becoming more price-sensitive than in years past.
As livestock feeders have been challenged by the cost and availability of corn, in part due to the drought and in part due to ethanol demand, DDGS has loosened the grasp somewhat. However, as the US and the world enter a period of tight feed supplies, Iowa State University economist Bob Wisner explores some of the trends that should be top of mind for DDGS users.
- DDGS production by ethanol plants is expected to show a decline in the current marketing year because of the drought, a function of higher corn prices, but also because demand for gasoline has declined. Wisner says DDGS production will also be a function of any change in policy that reduces ethanol production, along with the amount of ethanol imported from Brazil. Another factor is the fact the industry has over-produced and received credits that could allow it to meet expected deliveries out of stocks, and not have to depend on high-priced corn.
- Wisner says the production decline will be temporary because of the approval of E-15 that will generate more DDGS from more ethanol production over time. And he says the higher ethanol blend could increase ethanol production by one-third or more in future years. In the past several weeks, ethanol production has exceeded USDA projections, and if that were to continue, Wisner says the rest of the year would result in larger supplies of DDGS.
- When fed to beef cattle, Wisner says a pound of DDGS can replace more than a pound of corn, but the rate of feeding is a lower rate for other livestock species. Domestic beef and dairy industries are the largest users; however the US has also been exporting large quantities of DDGS. He says that will increase as more ethanol is produced.
- Exports have been purchased by Canada and Mexico, but in the 2009-10 marketing year China became a large customer and bought about one-fourth of US exports. After a brief dip due to a potential trade dispute, China has returned as a buyer, even though it is also a large producer of ethanol and distillers grains.
- DDGS is typically priced under the cost of corn, but due to drought market dynamics the costs have drawn closer with corn and soybean meal, and at times even exceeded them. He says, “Record or near-record high soybean meal prices likely have allowed DDGS prices at times to exceed corn prices as the market more closely reflected their protein value.”
- Wisner is not hesitant to predict some very tight supplies of livestock feed in coming months, not only including DDGS, but grains, soybean meal, and feed wheat. He says current indications are for very tight supplies in 2013. Final US crop data will be released in early January, when South American supplies will need to be abundant. But Wisner says the current data points to significantly higher prices in the coming marketing year for DDGS.
- One of the coming trends that DDGS users will have to watch is the change in content of DDGS as ethanol plants remove corn oil. Different amounts will be removed at different plants creating a need for valuation of the product, identification of the product content, and how its value differs from conventional DDGS.
DDGS has become a valuable and dependable livestock feed, particularly for the beef industry, but its availability could become tight in coming months. Ethanol production has expanded over past years, but the rate of increase has flattened. DDGS prices have risen to be more closely aligned with corn and soybean meal. Changes in government policy with regard to ethanol along with international demand for DDGS will also play roles in supply and demand for the product.
Source: FarmGate blog