Balancing DDGS Value for Producers, Feeders

Ethanol coproduct plays important role on both sides of value proposition
By Kurt Rosentrater | January 16, 2012

Over the years, many potential value-added applications for ethanol coproducts, such as aquaculture feeds, human foods, and bio-based plastics, as well as new or modified processing techniques, including pelleting, extrusion, fractionation and oil extraction, have been examined.  Many of these ideas have merit and can improve the value of DDGS and WDGS.  Some have been extensively implemented; some have only seen limited adoption in the industry, however.

This raises the question: What is value?  The answer really depends upon your perspective. Ethanol plants are in business to make fuel and to make money. Livestock producers, on the other hand, want low-cost feed ingredients which will result in equal, or perhaps better, performance than other ingredients, but ultimately they also want to make money. In other words, value appears to be slightly different depending on your point of view, but ultimately it boils down to economics.

Value for Feeders
One way to quantify value is to examine sales price. In the past 30 years, between 1981 and 2011, the market price of DDGS has ranged from $50.70 to $209.40 per metric ton, with an overall average of $134.50 per metric ton (data available at www.ers.usda.gov). As with any commodity, price has fluctuated, sometimes drastically, and this year DDGS has been at record highs. Historically, the price of DDGS has paralleled that of corn, even though it has sold at a discount relative to corn. During this year alone, DDGS sold at 73 to 92 percent of the price of corn. Moreover, it has sold at 52 to 66 percent of the price of soybean meal, its closest competing feed ingredient. A more accurate examination of price would be on a unit of protein basis. Using this criteria, during 2011 the value of DDGS has ranged from $7.60 to $8.30 per metric ton per unit protein. Soybean meal has been nearly equivalent to DDGS, and has sold between $6.30 and $7.90 per metric ton per unit protein. Corn, however, has ranged between $25.70 and $34.40 per metric ton per unit protein. When seen in this light, DDGS is a tremendous bargain to livestock producers!

Value for Producers
How important are coproducts to ethanol plants? What is their value proposition? During 2011, the value of ethanol ranged from $3.90 to $8.20 per bushel of corn processed, while the value of DDGS has been from 70 cents to $1.90 per bushel of corn processed. In other words, the value of DDGS has ranged from 12.9 to 21.8 percent of the value of ethanol, which is actually quite substantial. Hence, DDGS is justifiably called a coproduct and not a byproduct.

Another way to quantify value is to examine utility. We know that ruminants consume the majority of DDGS in the U.S., while swine, poultry and export markets are becoming significant as well. Over the years, many feeding trials have been conducted to determine how best to use DDGS and WDGS in livestock diets. As fractionated products grow in availability, it is becoming necessary to conduct even more trials to understand how to use these new products as well.

Actual use in livestock diets will depend on many factors, including species, age/size, availability, price and the price of competing ingredients, as diets are formulated on a least-cost basis. Recent literature (see, for example, the analysis published by Hoffman and Baker, 2011; www.ers.usda.gov) has estimated that, on average, DDGS currently displaces corn and soybean meal in U.S. livestock diets at a ratio of 1.22. This figure speaks volumes about how DDGS is valued by livestock producers. But it would be useful to have more detailed information, and to understand how each type of coproduct is actually used in specific livestock sectors, for particular age groups. Unfortunately, a planned USDA nationwide survey of livestock producers was canceled due to federal budget cuts, so we will not have this data anytime soon.

Finding the Balance
Going forward, what can we do to improve coproduct value and strike a balance between ethanol profits and livestock profits? For certain, we need to continue efforts to improve coproduct quality and to reduce potential problems in the industry. For example, seven years ago we faced the so-called “Ten Million Ton” question: What would we do with all of the mountains of distillers grains that would be left over once production levels reached 10 million metric tons per year? That question was resolved years ago through research, education and outreach to the livestock and international markets. To date, there have been no mountains—all is fed, either in the U.S. or in other countries. Five years ago, as the industry was growing exponentially, the major challenges facing the industry included:
• Flowability problems during storage and transport.
• Increasing coproduct use in species-specific livestock markets.
• Optimizing and maximizing inclusion rates.
• Improving coproduct nutritional content, quality and value.
• Utilizing next generation coproductsfrom new ethanol production processes.
• Increasing educational activities for livestock producers.
• Standardizing analytical laboratory methods.
• Fractionating nutrients into concentrated streams (e.g., high-protein DDGS, low-fat DDGS).

Some of these challenges have been overcome; others have not.  And new challenges have arisen in recent years. These include, to name a few:
• Mycotoxin occurrence (in raw corn and in coproducts).
• Antibiotic use during fermentation and residues in coproducts.
• Urea use during fermentation.
• WDGS shelf life vs. mold and spoilage.

It is true that developing new processes for, and new products from, coproducts can increase their value. But the best and easiest way to maintain, or even increase, the value and utility of coproducts is to reduce variability and improve the quality of the coproducts themselves—this includes both the nutritional properties as well as the physical properties. This approach will result in coproducts that are more attractive to livestock producers. Some plants have realized this and have begun to implement quality control and quality improvement programs for coproduct production. This is in addition to the existing quality program for the production of the fuel that has been used for years because of the need to meet ASTM standards.

The industry has suffered much criticism over the years from the outside. The ongoing food versus fuel debate persists. We in the industry understand that ethanol manufacturing actually produces large volumes of animal feed—nonfermentable materials that displace corn in animal diets. Perhaps we need to increase our efforts to reach out to the public to alter their perceptions of our industry. Truly, distillers grains are still our great untold story.

Author: Kurt Rosentrator
Assistant Professor, Agricultural and Biosystems Engineering
Iowa State University
(515) 294-4019
[email protected]