From goo to gold

Jun 11, 2010

Ethanol mandates have been a contentious issue over the past few years the and the run up in corn values in 2008 was very destructive to animal agriculture. It’s never been a secret that the majority of U.S. corn production has been sold as livestock feed, and when the federal government started pouring money at the ethanol industry, it started consuming large supplies of corn, this year estimated to be 4 billion bushels. Livestock have been consuming roughly 6 billion bushels.

However, distillers dried grains (DDGs) a distillers byproduct, has helped offset some of the corn feedstuffs that distillers have been using, and DDGs have suddenly become big business. Four years ago, distillers had a hard time getting rid of the stuff, and many cattle producers would get it for next to nothing to haul it off in its wet form. DDGs do require a little energy to produce but are a very stable and ample feed component.

One ton of DDGs is produced from every three tons of corn used by distillers; the stuff is high in protein, fat and fiber, but low in calcium, phosphorus, starch and some amino acids. Some feed industry sources claim that DDGs have 125-135 percent of the feed value of corn. It’s a concentrated feedstuff, and some cattle feeders have put as much as 50 percent of the stuff into their feedlot rations.

The market for DDGs has expanded to the point that the Chicago Mercantile Exchange (CME) started trading a futures contract on the stuff last April. The ethanol industry produces about 33 million tons of DDGs annually and cattle feeders have been in position to utilize DDGs the best. With lots of volatility in today’s commodity markets, this contract will give livestock producers a new risk management tool. It will also provide ethanol producers risk management through the opportunity to hedge corn and natural gas, while managing the outputs of ethanol and DDGs.

The CME DDG contract is deliverable and is specified as 100 short tons. It must contain a minimum of 26 percent protein, 8 percent fat, with a maximum level of 12 percent fiber and only 11.5 percent moisture. Buyers can request DDGs with no more than five parts per million vomitoxin, with testing at buyer’s expense. So far, there has been very little trade on the CME, which is typical for a newly contracted commodity. The delivery points are Chicago, IL, for points east of the Mississippi River, and Council Bluffs, IA, for points west of the Mississippi River.

Exports have become a big component of the DDG market with over 20 percent of the total volume exported to Mexico, Canada and Turkey. China has also really stepped up to the plate and started buying DDGs in a big way. During the first six months of 2009, China imported only $1 million worth of DDGs; for the same period in 2010, they have imported $127 million. USDA’s Foreign Ag Service says if the pace continues, DDG exports could reach $1.2 billion this year. You can really say that DDGs have turned from goo to gold.

China is an interesting story and is expected to purchase more feedstuffs from foreign sources. They are big buyers of soybean meal and have recently been big corn buyers. The import of DDGs is intended to offset feed costs from soybean meal. China has a growing meat industry, and most of the imported DDGs are used for fish feed in the southern portions of the country. Some are also used to grow hogs and chickens. Demand for pork and poultry in China is huge, more than doubling in the past 20 years. China does produce their own ethanol and DDGs, but they are too toxic to be used for livestock feed. China imports a lot of feed stuffs from the U.S.; unfortunately, they don’t import the boxed beef or variety meats we would like to see.

It’s really quite amazing how the DDG market has developed over the past few years. From essentially brew trash to a standardized feedstuff, and to have 20 percent of the DDG production go to export markets is very surprising. It takes a lot of resources to feed 1.3 billion people and it’s going to take more to feed the 10 billion who are expected to be on the planet in 2050.

U.S. ag exports are poised to grow by $4 billion in 2011, however, beef exports are expected to be flat. The potential to grow exports in the future is huge, but we’ve got to be competitive and we have to work at it. — PETE CROW