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:
- Flowability — High temperatures and humidity can sometimes
cause the most commonly produced distillers grains
product, distillers dried grains with solubles (DDG), to
stick together and harden into something resembling a
fine-grain concrete. The caking problem was so severe that
air hammers were used to extract the DDG from railcars.
Rail carriers — understandably upset to see their cars damaged
by the air-hammer unloading — prohibited plants
from using their cars to ship DDG. Having no option but
to purchase or lease railcars dedicated to DDG transport
put an otherwise unnecessary financial and logistical burden
on the ethanol plants. It added about $6 per ton to the
cost of shipping, or about $39 million a year industry-wide.
Several preventive products are being developed to improve
DDG flowability, mostly with mixed results. The industry
is still searching for better solutions to this, its biggest
obstacle. Opportunities for expansion into international
markets, such as Mexico and Asia, are compelling reasons
for the industry to resolve these DDG flowability challenges.
- Movement toward standardization — An industry-wide
push for more consistent color, palatability, nutrient content,
particle size and flowability of the product is opening
doors to markets previously unimagined. In concert with its
effort for consistency, the industry is developing a set of
standardized definitions for distillers grain products along
with standards for quality and testing. The Renewable
Fuels Association (RFA) and the American Feed Industry
Association (AFIA) have taken the lead and are working
together to reconcile and resolve the numerous ways that
distillers grains are now tested and so that nutritionists may
soon have something that approaches a single standard.
- Export opportunities — There is sufficient domestic
demand to consume the potential 7 million metric tons of
distillers grains that U.S. ethanol plants are expected to
produce in 2006. However, if the corn ethanol industry
grows to 15 billion gallons per year, there is a genuine need
to develop markets beyond our borders. The U.S. Grains
Council (USGC) is working hard to identify new and
emerging opportunities for distillers grains exports. Inroads
into potential growth markets such as Asia, Mexico, Canada
and the European Union are being channeled through the
USGC’s education efforts in its 10 overseas offices. The
council conducts DDG feed trials to demonstrate the quality
and benefits of using DDG as an ingredient in feed
rations for swine, poultry and dairy diets.
There is great export potential in Asia because there is a
sizable feed industry that can use DDG (and the Asian
ethanol industry is only just emerging). Asia is also a traditionally
significant importer of U.S. grain. Japan, for example,
is the top customer for U.S. corn. Education efforts
and feeding trials are currently being conducted in Japan,
Taiwan and China. Other potential markets for U.S. DDG
lie within the European Union, which is already a frequent
buyer and has the appropriate systems to handle DDG
imports. The EU may also prove to be an especially strong
customer during drought years.
Two significant opportunities for expanding DDG
export markets exist in Mexico. Hog growers there have
expressed a keen interest in importing significant quantities
of DDG to blend into their hog feed, and they have
the infrastructure to handle it. The poultry industry, while
having a less advanced infrastructure, is still very promising.
The poultry market in the Veracruz region alone has
the potential to displace 60,000 tons of corn per month.
However, because of its infrastructure limitations, the best
way to move DDG into the Mexican poultry market may
be as a complete feed. Importing processed feeds such as
DDG does not require an import certificate and avoids the
quota system that regulates the volume of Mexican corn
imports.
- Educating end-users — From fertilizer to fuel, to plastic
resin replacement, to biomaterials (such as cat litter) and
now to novel human food applications, more and more
unconventional applications are presented for distillers
grains every year. Alternative uses could one day make up
a significant portion of the global distillers grains market.
Research and education efforts are having an impact to
promote distillers grain use in ever-wider applications here
at home and abroad.
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.
