Understanding the Distillers Grains Supply/Usage Balance Sheet

AgMRC Renewable Energy Newsletter
November/December 2008

Robert Wisner                                                      
Professor of Economics and Energy Economist
Ag Marketing Resources Center
Iowa State University
rwwisner@iastate.edu

Our current projections of U.S. dry distillers grain and solubles (DDGS) production and use. will update these projections each month as USDA numbers and market conditions change.  No official USDA or Department of Commerce data for DDGS supplies and use are available.  The data represent our current best estimates of how much of this product is being produced, as well as approximately how much is used for livestock and poultry feed and for exports.  We may further refine the numbers in the next few months and add price information.  Our data are on a dry-weight equivalent basis, although a substantial amount of distillers grain is fed wet or only partially dried for beef cattle feedlots. 

This information has been developed to give the grain and feed industries and the animal agriculture sector an approximate picture of how much DDGS is being used to replace corn and soybean meal, and a general indication of DDGS use by species.

When corn is processed into ethanol in a typical dry-mill plant, the starch is converted to ethanol.  Starch is a major source of energy in the corn kernel and historically has been a major component of livestock and poultry rations.  After processing into ethanol, about one-third of the original dry weight of the corn remains as DDGS.  DDGS is a medium-protein feed ingredient that contains slightly more than half the protein percentage content of high-protein soybean meal.  Its amino acid content, however, is less favorable for hogs and poultry than soybean meal.  DDGS also contains some energy in corn oil, fiber, and other components. 

Some ethanol plants now remove part or most of the corn oil from DDGS.  Removal of oil changes the nutritional content, creating a product with a higher percentage of protein and somewhat less energy content.  This modified DDGS, for some classed of livestock, may replace more soybean meal than conventional DDGS.  For hogs, it may reduce concern that moderate DDGS feeding levels will produce soft bellies and adversely affect bacon production.  In the next several years, more ethanol plants likely will install equipment for removing oil from DDGS.

Nutritional Aspects of DDGS

Distillers grain can be used to replace some soybean meal as well as corn in livestock and poultry rations.  Animal nutritionists typically use amino acid content, as well as protein, energy, mineral content and other factors in balancing rations.  The optimum set of ration ingredients may change somewhat over time with changing price relationships.  Also, optimum ration formulations vary with the age of the animal or bird, and with breeding stock vs. market animals or birds.  Thus the numbers we use here are approximations that may not exactly match rations for any given group of livestock or poultry. 

Our estimates of feeding rates and substitution ratios for corn and soybean meal are based partially on dietary recommendations from animal nutritionists indicated in the references at the end of this report.   In estimating the amount of corn and soybean meal replaced by exported DDGS, we use the same substitution relationships as in the domestic market. 

In reality, DDGS may be stored for short periods of time and some inventories are in the marketing system at the start and end of marketing years.

Our balance sheet shows assumed levels of DDGS for hogs, poultry, dairy, and beef animals and corn replacement factors, as well as assumed export levels.  Because of the small numbers of animals involved, we have not estimated DDGS use for sheep and goats.

DDGS Use in Beef and Dairy

The digestive systems of ruminant animals (Cattle, sheep, and goats) are well suited for using distillers grain.  Beef feedlots in the western Corn Belt, especially in Nebraska, Kansas, and Iowa are large users of wet or partially dried distillers grains.  In this use, distillers grain substitutes pound-for-pound for corn on a dry matter basis, up to around 40% of the ration.  In some cases, higher dry-weight percentages may be feasible.  Corn traditionally has been a major source of energy in beef rations so a significant part of the corn in beef feeding is being replaced by DDGS.  Soybean meal use is quite limited in these feeding operations, so DGS is used mainly as a corn substitute.  Beef feedlots in the Southern Plains use both wet and dry DDGS, depending on whether an ethanol plant is located nearby or whether the distillers grain has to be shipped in from the Midwest. 

DDGS also is used to supplement rations in beef cow-calf operations during winter months.  These farms produce feeder animals that are placed in beef feedlots at a later stage of the animal’s life cycle.  Winter DGS supplementation provides both energy and protein in the beef cow-calf rations. 

Dairy cows also use distillers grain very efficiently if its nutritional content is uniform from load to load and does not vary greatly over time.  For dairy cows, DDGS replaces both corn and soybean meal in rations.  A large amount of DDGS is used on larger dairy farms.  Use for dairy cows tends to provide the highest-valued feed market for DDGS since it replaces higher-valued soybean meal as well as some corn.

Use in Hogs and Poultry

Digestive systems of hogs and poultry are less suited for feeding high levels of DDGS, although nutritionists indicate it can be used at up to 15% to 20% of their rations.  For hogs and poultry, DDGS is a partial replacement for both corn and soybean meal. 

Other Information

Our balance sheets also provide estimates of how much domestic corn feeding and exports are replaced by DDGS, as well as approximately how much soybean meal is being replaced.  With this information, we calculate the net acres of corn needed for ethanol production and net changes in U.S. corn feeding from year to year after DDGS substitution is included. 

We also include the year-by-year number of soybean acres used for biodiesel that is calculated in our soybean oil-biodiesel balance sheet.  From this information, we estimate and project total U.S. corn and soybean acres needed for biofuels as well as the percentage of total corn and soybean acres that are needed for biofuels.

Projections for Future Years

Cropland acres have become the limiting resource for expanded production of corn-based ethanol and soybean-based biodiesel.  To better understand market dynamics for these crops and biofuels, a multi-year perspective is needed.  Our balance sheet projections again include both the current 2008-09 marketing year that began on September 1, 2008 and tentative projections for the following two years.  Corn processing for ethanol is projected to increase at a growth rate of almost 33% in the current marketing year, before slowing moderately in the following two years.  Expanding corn demand likely will tighten the available supply of cropland, and may reduce or restrict domestic corn feeding, depending on crop yields.  To provide sensitivity analysis, we show DDGS supplies and corn feeding with three alternative corn yields.  The medium yield projections for 2009-10 and 2010-11are based on the 1990-2007 U.S. corn yield trend.  Low and high yields show the potential impact of modest variations above and below a trend yield.  For more detail on supply-usage projections, see our balance sheets for corn and soybean. 

For 2008-09, we anticipate that the final U.S. yields will vary only slightly from the USDA October crop estimate, which is shown in the “Medium” column.  For 2009-10 and 2010-11, the “Low” columns represent 6.3% and 5.7% reductions respectively from corn trend yields.  With the low yields, tight supplies would be expected to bring sharply higher prices than those resulting from trend yields.  The higher prices would be expected to modestly reduce the amount of corn processed into ethanol vs. what would be anticipated with a normal yield.  Even so, our low-yield projections of corn use for ethanol are modestly above levels mandated by the Energy Security and Energy Independence Act of December 2007.   Higher corn prices also would be likely to reduce domestic corn feeding and exports.  Our analysis shows the amount of distillers grain anticipated to replace corn, soybean meal, and corn exports.

Although DDGS replaces the soybean meal from a projected 5.1 to 5.9 million acres, a larger amount of acres than that is needed for soybean-based biodiesel.  The meal-replacement acres cannot be subtracted from the soybean oil acres, since those acres very likely will be needed to meet the biodiesel mandate.  The market impact of substituting DDGS for soybean meal is expected to show up as a change in the price ratio of soybean meal to soybean oil vs. the long-term price relationship between these two commodities.

Current Global Financial Market Uncertainty and the Projections

Readers should be cautioned that our projections depend on global financial markets transitioning into a period of stability by early 2009.  Financial market stability is important to domestic and foreign demand for livestock, feed grains, soybean meal, and DDGS, as well as crude petroleum oil, gasoline, diesel fuel, and biofuels prices.  Prices for all of these commodities have dropped very sharply in the last few months.  The world price of crude oil is especially important since it will strongly influence the value of ethanol, biodiesel, and the demand for biofuels.  At this writing, crude oil prices are around $67 per barrel.  OPEC has called a special meeting to discuss a reduction in oil production.  Our projections are based on the assumption that crude oil prices will stabilize at about $75 to $85 per barrel.

References

 1 For information on use of distillers grain in livestock feeding see various South Dakota State University reports, Hans H. Stein, Ph.D., SWINE FOCUS #001, “Distillers dried grains with solubles (DDGS) in diets fed to swine,”
Department of Animal Sciences, University of Illinois at Urbana-Champaign, and Sally Noll, Considerations in Feeding DDGS to Poultry

2  For details on the mandates, see U.S. Congress, Energy Independence and Security Act of 2007, Section 202