Measuring the gains
for distillers grains

By Anthony Crooks,Ag Economist
USDA Rural Development, Cooperative Programs

he development of distillers grains as a valuable co-product for animal feed has been instrumental to the growth of the fuelethanol industry. If ethanol maintains its current pace of expansion, as much as 17 million tons of distillers grains will be generated annually by 2012. That level could rise to as high as 25 million tons by 2016.

Along with that growth in volume, pressure mounts to find a home for this co-product of ethanol, which is largely the protein that remains after the starch content is removed from corn in the distilling process. Sheer volume, favorable prices and the growing quality of distillers grains are expected to encourage nearly every major livestock producer and feed manufacturer to pursue ways of further using this feed.

Revenue from the sale of distillers grains once comprised about one-third of the average ethanol facility’s total revenue. However, two spikes in the price of oil, the Energy Bill and soaring ethanol markets have combined to lift ethanol income so much that those distillers grains now comprise a significantly smaller percent of their revenue, on average.

Not that plant managers are complaining about today’s circumstance. After all, it’s really a reflection of some exceedingly favorable ethanol market conditions, and no one truly expects this environment will last forever. However, if distillers grains are to again return to a greater portion of the revenue portfolio, an increasing diligence by plant managers to ensure a consistent, high-value product will be required. There is a real possibility that the U.S. livestock-feeding industry may ultimately approach market saturation for consumption of distillers grains.

From price takers to makers
In the days when ethanol cost a dollar per gallon, plant managers would have been proud to receive 10 percent of their plant’s revenue from distillers grains. Plant managers were often confronted by livestock feeders whose opening bid was: “I shouldn’t even have to pay for this stuff; you’re making ethanol.” Indeed, frequently the best offer was: “I’ll pay the freight to haul it off. And that’s it.”

The situation was almost dire in the beginning. Livestock feeders had the upper hand because they understood that wet distillers grains had to be moved quickly (in less than three days) or it would spoil. Feeders recognized the pressure that plant managers were under to sell, so they would show up on “day two” and “graciously” offer to take the product off the premises.

The first real technological development for distillers grains was the use of driers to extend the product’s shelf life and to improve its consistency. Managers then set a goal to keep the dryers going and never make another pound of wet feed that wasn’t pre-sold.

A few of the early plants were fortunate enough to have Farmland Industries as one of their investors. Farmland’s feed division not only helped to market the co-products but, more importantly, sponsored research and conducted its own studies on how best to make and use distillers grains. Farmland’s feed division has since been merged into Land O’ Lakes Purina Feeds, which continues the research in its own facilities and is working with land-grant universities in the Corn Belt.

Co-product research and development by universities and private corporations significantly enhanced the nutritional and market value. Researchers at the University of Minnesota, Iowa State University and the University of Nebraska served not only to expand existing markets for distillers grains among ruminants (dairy and feeder cattle), but also performed groundbreaking work to develop new markets among single-stomach species such as swine and poultry.

Feed inclusion rates for distillers grains are presently as high as 40 percent for cattle, 25 percent for swine and 5 percent for poultry. It is expected that these levels could increase another 5 to 10 percent.

Much more than an afterthought
So, far from being an afterthought, distillers grains grew to become a significant component of a plant’s revenue stream. And that progress was critical to the development of the entire industry.

University-trained nutritionists began working with the plants to help market the feeds in the early 1990s. Over time, with more volume and a higher consistency, the plants developed a track record for the products’ feed value.

After years of research and a number of technological developments (and a lot of education), feeders learned the nutritional value of distillers grains with a high level of precision: it equals from 120 to 135 percent of the nutrition of corn in the feed ration. As the corn’s starch is removed to manufacture ethanol, the corn’s protein level is raised in the co-product.

Because nutrients are available in many different ingredients, livestock producers incorporate distillers grains into the ration simply as it makes economic sense to do so. As such, distillers grains compete with all other feeds and feed ingredients in terms of nutritional content, energy and cost per unit. And because distillers grains are discounted relative to corn (despite having a higher nutritional value), feeders look for ways to include (substitute) more of it into their ration.

The development of linear programming (LP) models and other computer applications for blending feed rations at the least-cost (subject to minimum nutritional requirements) contributed greatly to the inclusion of distillers grains. These models provide the relative contribution of a particular feed ingredient — distillers grains, for example — given its price. Virtually every feed manufacturer and seller has an array of computational tools to determine the optimal available feed ration, subject to price and nutritional specifications for the region’s cattle, swine and poultry.

With these tools, a marketer or feed seller can demonstrate to the producer the true value of including distillers grains (or any particular feed ingredient) into the ration by how it affects the bottom line. As the managers of these models, nutritionists have become the industry’s gatekeepers of distillers grains market value.

The path forward:
challenges, opportunities

As the ethanol industry grows, sufficient volumes of distillers grains will be manufactured to develop a consistently reliable supply at the local, regional and, ultimately, the national and even international levels. Between then and now, however, a few marketlimiting issues must be resolved, including: For a list of references used for this article, please e-mail the author at: anthony.crooks@wdc.usda.gov, or call him at (202) 205-9322.



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