KANSAS CITY — The outlook for Distillers’ dried grains with solubles, a byproduct of corn ethanol production, will be much better understood at the end of March, when the U.S. Department of Agriculture releases its next Grain Stocks report, said Robert Wisner, professor emeritus in agricultural economics at Iowa State University.
Dr. Wisner has been following the fortunes of distillers’ dried grains with solubles, typically called DDGS, ever since they became a well-established byproduct of corn ethanol production in the early 2000s. Early on, manufacturers of ethanol virtually gave away DDGS. Now that their nutritive qualities are well-understood, they have grown into a multi-million-dollar business and a sizable agricultural export of the United States.
James Robb of the Livestock Information Center in Denver said the DDGS market is, in fact, a mature one where buyers and sellers are well-versed in the byproducts’ nutritional and performance properties. Prices, he said, closely follow other feedstuffs such as corn and soybean meal that could be substituted for DDGS.
Livestock growers blend DDGS into feed rations at percentages that researchers have found lend the most nutritional benefits, usually in relatively small amounts of perhaps 10% to 20% of feed for poultry and hogs. DDGS may be used at substantially higher levels for beef cattle and other ruminants. Too many distillers’ dried grains may start to have negative impacts on the qualities of fat in hogs, for instance, so it is essential to control the amount in animal feed.
In 2013, about a quarter of DDGS manufactured in the United States were exported to a small group of countries. Mexico, Canada and China are the biggest importers with South Korea, Japan and Vietnam also on the list of loyal customers.
The DDGS, a higher protein feed source than the corn they come from, have been successfully incorporated in animal feed for swine and poultry. The newer low-fat DDGS, which are manufactured with the oil removed, are most often used in feed for beef cattle. They are not a big part of the export picture as of yet because most of the importing countries focus their meat production on chicken and pork.
Many countries have biofuel mandates to make ethanol from raw materials such as sugar and soybeans but fairly few countries concentrate on producing ethanol from corn, as the U.S. does. China is one of the nations that does make ethanol from corn and therefore creates DDGS, but its need for lower-cost protein sources in animal feeds has been large enough to make it an active importer of DDGS. Some observers have suggested that the demand for U.S. corn that many believed would mean a mushrooming in Chinese imports of U.S. corn has in part been displaced by the sometimes-cheaper importation of DDGs from corn, Dr. Wisner said.
At the moment, DDGS cost 100% of corn, Dr. Wisner said, and has been trending higher in concert with firming corn values. He said the key to DDGS pricing is in relation to the tightness in corn stocks and soybean meal prices, which will be revealed in more detail March 28, when the U.S.D.A. releases its most recent Grain Stocks report. No futures market exists for DDGS and pricing comes from individual suppliers.
There is plenty of uncertainty about whether the coming growing season will see a record large corn crop, with ethanol production reaching the federal mandate of up to 40% of the corn output converted into ethanol. Ethanol prices reflect trends in gasoline pricing, Dr. Wisner said, but DDGS follow corn.
The U.S.D.A. is predicting the most acres planted to corn since the mid-1930s coupled with a return to trend-line yields after a drought-ravaged short crop in 2012. If the U.S.D.A. is right, corn prices are expected to fall to about $4.80 a bu. Ethanol, too, would be expected to fall in price. Whether the full mandate is filled remains to be seen and, with it, the amount of DDGS created.
Dr. Wisner urged caution in assuming the 2013 corn yields per acre will reach previous record highs, noting that drought and very low subsoil conditions west of the Mississippi, where two-thirds of the corn crop is grown, remain entrenched, even though moisture levels east of the Mississippi have moved much closer to normal.
He said he expected DDGS supplies to be fairly tight until September but not likely to be in as short supply as soybean meal, which would tend to favor DDGS purchases, both domestic and from importing countries.