Webinar discusses DDGS challenges, opportunities

By Erin Voegele | January 16, 2014

Distillers grains have long-been an important coproduct for the U.S. ethanol industry. While the majority of DDGS are consumed domestically, more than one-fourth of U.S. DDGS production was exported last year. As ethanol producers begin to diversify their coproduct offerings, the composition of DDGS is changing. These changes, along with new requirements from major export markets, are offering a wealth of opportunities and a variety of new challenges for U.S. producers.

Experts in the DDGS industry addressed these issues in a Jan. 16 webinar hosted by Ethanol Producer Magazine and sponsored by the 2014 Fuel Ethanol Workshop & Expo.

Tom Bryan, editor in chief of Ethanol Producer Magazine, opened the event by noting 2013 distillers grains exports will match—if not exceed—the industry’s high mark, reaching more than 9 million metric tons. “The big story has been China, which now tops the list of importers,” he said. “China, year-on-year, has doubled its imports of [DDGS].” That growth, however, is coming with tougher demands on U.S. producers.

Randy Ives, director of Ethanol Services at Gavilon, spoke about the Chinese export market as well as upcoming changes that DDGS producers need to be aware of.

Ives opened his presentation with a historical overview of DDGS export volumes, noting that while Canada and Mexico comprised the largest export customer in 2008, the East Asian market has expanded rapidly, becoming the most common market for DDGS exports in 2013. China is now the largest importer of U.S. DDGS.

The growth of the Chinese market, however, was not linear. Exports of DDGS to China in 2010 and 2011 were significantly reduced. “Imports to China diminished by about 54 percent as they filed an anti-dumping case against us in the U.S.,” Ives said, noting that the case was filed because China thought the U.S. was marketing our distillers there below cost or at cheaper prices than elsewhere the world. “That charge was not proven and was dropped,” Ives continued.

While exports to China have since rebounded and continued to grow, new challenges are now appearing.  “We have a GMO event that is causing us some snags, complications with China,” Ives said.

According to Ives, China hasn’t implemented new GMO policy. Rather, the country has started enforcing an existing policy. In late December, China prevented some boats carrying corn and distillers grains from delivering product to the country due to concerns over MIR 162, a genetically-modified corn unapproved in China. MIR 162 is a GMO event developed by Syngenta. It is approved for use in food and feed applications in the U.S., Canada, European Union, Japan and a variety of other countries.

Ives called MIR 162 a “wild card” in the DDGS export world. He said rumors on the street have indicated and approximately 12,000 tons of distillers grains have been rejected by China over the past few weeks. That rejection caused the price of DDGS to fall sharply at the beginning of the year. However, prices have since rebound.

In addition to MIR 162, Ives said DDGS producers need to be aware of issues surrounding China Ministry of Agriculture registration, AQSIQ (General Administration of Quality Supervision, Inspection and Quarantine) registration and the Food Safety Modernization Act.

MOA registration has been ongoing for approximately three years. Ives said the process takes approximately three months of hard work and $8,000 to complete. It must be completed at the plant level, not by marketers. However, Ives said the U.S. Grain Council can offer a wealth of assistance. To date, he estimates that only about 20 percent of the ethanol industry has completed the process. AQSIQ registration is another issues that U.S. DDGS producers need to be aware of. Ives compared the AQSIQ to U.S. Animal and Plant Health Inspection Service, and noted many of the requirements and checkpoints are similar to the FMSA, which DDGS producers will be required to fully comply with by 2015-2016.

Sean Broderick, DDGS Marketing Manager at CHS Inc., addressed supply and demand in his presentation. While final 2013 data is not yet available, Broderick estimates that DDGS exports will reach approximately 9.2 million metric tons for the entire 12-month period, equating to 25.34 percent of total U.S. DDGS production.

Domestically, he said beef and dairy are the two biggest consumers of DDGS. However, there has been increased consumption by swine and poultry since 2009.

Last year was an odd year for DDGS pricing, he said. While distillers grains have traditionally traded at as low as 70 percent the price of corn, prices increased to as much as 140 percent the price of corn last summer. In addition to increased Chinese demand, Broderick attributed the price increase to spikes in the price of soybean meal.

Gerald Shurson, a professor in the University of Minnesota’s Department of Animal Science, also participated in the webinar. Among the many topics he addressed during his presentation was a discussion of the oil content of DDGS. With the expansion of corn oil extraction at U.S. ethanol plants, the market has seen far more variability in the oil content of DDGS in recent years.

To help provide clarity to those in the feed market on the energy value of lower-oil DDGS, Shurson has conducted feeding trials with DDGS sources ranging from 13 percent to 5 percent oil.  Conventional wisdom would indicate that if you take oil of DDGS, it’s economic and energy value should go down, he said. However, that assumption did not prove correct.  

“We expected—not knowing any differently at the time—that as oil was removed from DDGS that the metabolizable energy content would linearly decrease,” Shurson said. “However, that wasn’t the case. In fact there were some sources of lower-oil DDGS that had as much, if not more, metabolizable energy value compared to the high-oil sources. This is not an inconsistent finding. We’ve conducted four or five experiments all showing essentially the same thing in pigs.”

As a result of the research, Shurson and his colleagues were able to develop a nutritional tool that helps those in the ethanol and feed industries determine the energy content of DDGS. It takes into account fiber, ether extract, crude fat, protein and similar factors. “We’ve been able to develop some fairly accurate digestible energy and metabolizable energy prediction equations,” Shurson said, noting that current equations are accurate to within approximately 140 to 150 kilocalorie per kilogram. He is currently working to improve the accuracy of the equation.

A replay of the webinar, titled “Early 2014 Distillers Grains Exports Outlook: New Opportunities, New Challenges,” is available on the Ethanol Producer Magazine website.