Distillers Grains Benefits, Supply Dilemma

By Charlie Staff | January 16, 2012

Looking back on 2011, it has been most rewarding for those producing and using distillers grains. The price of corn increased to nearly $8 a bushel and the price of distillers grains to over $200 a ton in many cases. This has been welcomed by ethanol distillers to help offset higher corn prices and, most importantly, to animal feeders to replace corn with a nutritious feed ingredient at less cost. DDGS replacement value is not just on a pound for pound basis. As USDA economists Linwood Hoffman and Allen Baker revealed in their well researched USDA report, “Estimating the Substitution of Distillers Grains for Corn and Soybean Meal In The U. S. Feed Complex,” on a average basis, this equates domestically to an estimated 1.22 pounds corn and soybean meal being replaced by one pound of distillers grains.

With 30 million-plus tons of distill­ers grains being fed domestically, animal feeders saved more than $700 million this past year, based on Iowa State University economist Robert Wisner’s Nov. 22 distillers grains balance sheet, (www.extension.iastate.edu/AGdm/crops/outlook/dgsbalancesheet.pdf).  When these values are multiplied by the difference in average current price value of DDGS vs. corn at $12 per ton and soybean meal at $93 per ton, as reported in the Dec. 16 DTN Weekly Distillers Update, this provides an average estimate of the value to animal feeders. This value could be understated, based on some feedlots in Nebraska using little or no corn or soybean meal and recent university feeding studies at Ohio State and Illinois State successfully using 70 percent distillers grains in cattle rations.

There also are reports this year of large hog confinement feeders using 40 percent and higher distillers grain in rations, ( page 30, November, Pork Magazine). Could this have contributed to this industry seeing in 2011 its highest profits since 2006?  (As reported by Chris Hurt in the Nov. 22 Pork Network.) The other major feed segment, the poultry industry, has been slow to take advantage of distillers grains but is now moving forward with improved rail into the Southeast, material handling capabilities and recent enzyme developments that will allow higher distillers grains ration levels.

Looking ahead, USDA is projecting continued high corn prices this year which means there will be continued strong demand for distillers grains. Clearly, corn and distillers grains pricing in past years shows the strong price relationship between the two. This is far from a mature market with very informed end users, however. There are many opportunities for expanding usage and more marketing efforts are needed.

There unquestionably is going to be continued demand for distillers grains, if corn and other grains prices stay higher in 2012 and as world demand for grain increases. There are very valid estimates that the domestic feed market potential for distillers grains is double that of current usage, but a question arises. What are the prospects for more ethanol from grain production with loss of tax advantages, effective lobbying against ethanol by animal feeding and petroleum organizations, and resistance from other sectors? Prospects to expand domestic ethanol-from-grain production look grim. It would appear we have reached the ethanol blend wall. Cellulosic ethanol will likely be a growth area, but cellulosic sources do not produce a coproduct that meets the legal definition for distillers grains: coming from a grain-based feedstock with a process involving yeast fermentation and distillation.It’s clear we are entering a new era of distillers grains supply without the previous 20 to 30 percent growth every year. How will this effect availability and price when considering other possible market and political changes that seem to be unpredictable? Times will be changing again and we all must remain vigilant and flexible.

Author: Charlie Staff
Executive Director, Distillers Grains Technology Council
(502) 852-1575
[email protected]