Indiana ethanol plants produce more DDGS than can be used

News
Feb 20, 2009
by WLJ

Indiana ethanol plants could produce enough of a livestock feed ingredient for Hoosier farmers to feed their animals three times over, a Purdue University study suggests.

Dried distillers grains with solubles (DDGS) is made from the leftover parts of the corn kernel in the ethanol production process. Indiana’s ethanol industry is expected to reach an annual production capacity of 1 billion gallons of the corn-based fuel, said Frank Dooley, the Purdue agricultural economist who conducted the study.

“What that generally means is we’re going to end up with around 900,000 tons of dried distillers grains per year,” Dooley said. The vast majority of DDGS is being used as livestock feed and, in particular, is heavily consumed by the beef and dairy sectors, which are relatively small in Indiana compared to some other states.

“My best estimate is that in the next two or three years, the Indiana livestock sector is going to be able to use 300,000 tons to 350,000 tons of DDGS a year. That means the ethanol industry is going to be sitting with roughly 600,000 tons of DDGS that is going to have to be exported out of the state.”

DDGS is mixed into regular livestock feed rations at percentages that vary based on the animal species. Some industry analysts project near 100 percent consumption of Indiana DDGS by the state’s livestock. Those projections include all livestock, both from small and large farms. However, because of the way DDGS is delivered and used, only large livestock operations like confined feeding operations (CFOs) and concentrated animal feeding operations (CAFOs) are likely to purchase the feed ingredient, Dooley said. “A study that was done by the U.S. Department of Agriculture’s National Agricultural Statistics Service indicates that livestock producers tend to use a truckload of DDGS in roughly two months,” Dooley said. “In other words, they don’t want to buy a whole bunch of the stuff and have it sitting around. That led me to the conclusion that, for the most part, the folks that are going to be using DDGS in the state of Indiana and across the country are goand CAFOs.”

In 2008, Indiana’s CFO and CAFO herd populations included 45.9 million chickens, 6.03 million turkeys, 5.07 million pigs, 188,517 dairy cows, and 55,137 beef cows, according to the Indiana Department of Environmental Management.

“On the flip side, it’s probably not going to make sense for smaller farms to put DDGS into their rations unless maybe two or three farms go in together to buy a truckload and share it,” Dooley said. Another factor in potential DDGS use in Indiana is price. The cost per ton remains relatively high— about $100—and has, so far, resisted traditional supply-demand market shifts.

“When we saw all of this extra production coming on line, we thought, ‘Supply goes up, the price is going to eventually start coming down.’ But that hasn’t happened as of yet,” Dooley said. “We’re a little bit surprised.

I think there are a couple of things going on. One is that the export market for our feeds has been very, very strong and that’s helping keep the price up. The other thing is our livestock producers and their use of distillers grains in their rations. Livestock producers are pretty smart and if distillers grains gets to the right price compared to soybean meal and corn and other ingredients, they’re going to put it into their rations.”

For the state’s ethanol producers, DDGS presents marketing and transportation challenges. “Ideally, you’d like to sell it wet because it saves a tremendous amount of cost in drying,” Dooley said. “But the downside of wet DDGS is it has a very short shelf life. It has to be fed within a week, and there are very few livestock operations in Indiana capable of feeding a truckload to a herd in a week.” There’s also the question of where Indiana ethanol plants will export DDGS they can’t sell within the state. Dooley said the product could wind up being shipped to cattle feedlots in the western U.S. or sent overseas.

“Ethanol producers should be thinking about securing marketing agreements and contracts to gear up for the export market,” Dooley said. “The industry is going to be heavily dependent on moving DDGS.” — WLJ

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