Can livestock consume enough DDGS to help ethanol makers?

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Jan 16, 2009
by WLJ
Can livestock consume enough DDGS to help ethanol makers?

Cornbelt agriculture has benefited from the ethanol market that will consume an estimated 3.7 billion bushels of corn this marketing year and has created a premium pricing environment for the corn grower.

2009 will produce an estimated 11 billion gallons of ethanol en route to the 2015 mandate of 15 billion gallons. But along with the explosive growth in ethanol has been a similar growth in production of distillers dried grains (DDGS), expected to reach 40 million tons this year. But what is the market for this commodity? At the typical dry grind corn mill that produces ethanol, the fuel flows into tank trucks and tank cars and the DDGS is shipped out at the other end of the plant to trucks and railcars headed to feedlots. For the ethanol refining industry to be profitable, there must be a market for both ethanol and DDGS. But the question of the potential market size for DDGS is addressed by Purdue economist Frank Dooley.

Dooley and other economists have offered potential market estimates based on maximum amounts of DDGS that can be included in livestock rations multiplied by the estimated number of head that would potentially be fed DDGS instead of the prime alternative, corn. The consensus of use has focused on dairy cattle consuming 12.7 percent, all cattle consuming 66.4 percent, swine consuming 7.3 percent, and poultry consuming 13.6 percent of the DDGS that are produced domestically. The various economic studies find that 100 percent of the DDGS will never find a livestock feeding operation and be consumed, and that the current volume of DDGS being produced should not become burdensome in the near future. Researchers found that not all farms would feed DDGS, and larger operations would be more likely to use it. The rate of DDGS inclusion in the ration depends largely upon price relationships with other feed, as well as nutrient composition and availability. Interestingly, inclusion rates vary from one economic study to another. University economists and livestock specialists usually have smaller amounts of DDGS included in livestock rations than does the National Corn Growers Association, particularly for dairy cows, swine, and poultry.

Livestock feeding practices have been tracked by USDA’s National Agricultural Statistics Service (NASS) which indicates livestock producers are feeding less than could be fed. Of the 1,276 livestock feeding operations using ethanol co-products: Dairy cattle were consuming 61 percent of the potential.

Cattle on feed were consuming only 36 percent of the potential. Beef cattle are being fed 55 percent of the potential. Hogs were being fed 28 percent of the potential.

Ten different classes and species of livestock may be markets for DDGS and are counted by NASS, but Dooley says, “The growth of the ethanol industry and the resulting availability of DDGS in the Cornbelt may influence state level populations for cattle on feed, dairy cattle, and hogs.” Dooley says the lack of consumption of DDGS stems from class of livestock and availability, although the expansion of the ethanol industry will resolve the latter issue. However, smaller farms may not have the equipment to handle it, shelf life may be limited, and transportation may be an issue. He says 25 percent to 40 percent of farms may find it difficult to feed DDGS. Using the average number of head of livestock per specie, Dooley says a 24-ton truck of DDGS would last 64 days at an average-sized dairy and 10 days at an average-sized hog operation, all based on differing inclusion rates in the ration.

For some operations, spoilage of DDGS would become an issue. Given a 60-day shelf life, it would require a dairy operation to have 178 cows and a poultry operation would have to have more than 80,000 pullets to consume the single truckload of DDGS in two months.

Based on the potential consumption, Dooley says 24 million tons of DDGS would have been consumed in 2008, with an upper limit to 55 million tons for the long term expansion potential. At this point, he says dairy farms have nearly reached their peak rate of consumption with 96 percent market penetration. Swine operations have reached 35 percent of their potential use, but only 15 percent of cattle operations are using DDGS to the maximum, and less than 10 percent of poultry operations are at potential consumption.

But ethanol expansion and more DDGS production are occurring daily, and Dooley says, “The amount of DDGS available for consumption will rise sharply from 13.49 million tons in 2007 to 20.62 and 30.03 million tons in 2008 and 2009, respectively. Compared to 2007, this represents around a 50 percent growth rate in both 2008 and 2009.” He says unless DDGS exports expand rapidly, DDGS consumption can only increase if more livestock producers feed it, and they feed it at higher rates in their ration. The expansion of the ethanol industry has increased the amount of DDGS available for livestock feeding operations and if the feed is not consumed, the ethanol economy will be adversely impacted. The current rate of DDGS production will saturate the dairy and hogs markets by the end of 2009 and the beef and poultry markets must triple their use of DDGS. — Stu Ellis, University of Illinois at Urbana-Champaign

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