U.S. DDGS Production and Disappearance: New Dynamics on Animal Feed Protein Market
By Sampath Jayasinghe
Decision Innovation Solutions, 11107 Aurora Avenue, Urbandale, IA 50322
Distillers’ dried grains with solubles (DDGS) is a co-product of the dry-mill ethanol production. DDGS can be used as an alternative feedstuff in livestock and poultry rations. DDGS production has increased dramatically in recent years due to significantly higher production of ethanol in the United States. Ethanol production reached a record 15.14 billion gallons during the 2015/16 marketing year, compared to 14.66 billion gallons during the 2014/15 marketing year. This increase in ethanol production contributed to an increase of 35.7 million metric tons in DDGS production during the 2015/16 marketing year, as shown in Figure 1. DDGS production during the 2014/15 marketing year was 34.8 million metric tons.
DDGS production for the current 2016/17 marketing year is forecast to be 37.3 million metric tons, a four percent increase from the 2015/16 marketing year. As shown in our June 2017 AgMRC report, current weekly ethanol production has been significantly higher in 2017. On July 31, 2017, the U.S. Energy Information Administration (EIA) released monthly fuel ethanol production (see Fuel Ethanol Supply and Disposition) for Jan-May 2017, indicating U.S. ethanol production during the first five months in 2017 was four percent higher than the same period in 2016. EIA’s July Short-Term Energy Outlook released July 11, 2017, predicts U.S. ethanol production will be slightly above 1.0 million barrels per day, resulting in record production for the rest of 2017. This information indicates 2017 is going to be a record year for both U.S. ethanol and DDGS markets.
Figure 2 shows the U.S. DDGS disappearance since the 2012/13 marketing year. The domestic feed and residual DDGS usage is estimated at 27.1 million metric tons for the current 2016/17 marketing year, compared to 25.4 million metric tons during the 2015/16 marketing year. This is an approximately seven percent increase. U.S. exports of DDGS is estimated at 11.5 million metric tons, compared to 11.6 million metric tons in the 2015/16 marketing year. DDGS domestic feed and residual usage has increased over the past years, but DDGS exports have been stagnant. Overall, the U.S. Department of Agriculture’s Economic Research Service (USDA-ERS, 2017) estimates 73% of U.S. DDGS is going to be consumed domestically, and the rest, at 27%, is going to be exported during the current 2016/17 marketing year.
DDGS have developed as a conventional feed ingredient in the U.S. animal agriculture industry, in addition to playing an important role in ethanol industry profits. DDGS have become a very competitive crude protein supplement in both livestock and poultry rations, and act as a substitute for soybean meal (SBM). DDGS also have potential to substitute for corn as a metabolizable energy supplement in livestock and poultry rations. Uniquely, DDGS can serve as a dual-purpose feed as it may displace both corn and SBM concurrently in livestock and poultry feed rations (Johnson, 2016). Hoffman and Baker (2011) shows one metric ton of DDGS can substitute for 1.22 metric tons of combined corn and SBM in the aggregated U.S. livestock market. Hoffman and Baker (2011) also indicates nearly 65.4% of U.S. DDGS consumed by beef cattle, 14.6% consumed by dairy cows, 8.2% by swine, and poultry consume 11.8%.
The rapid expansion of the DDGS market in recent years creates some interesting new dynamics in the market for protein and energy sources in domestic animal diets. SBM and corn long have been the predominant vegetable crude protein and metabolizable energy sources, respectively, in livestock and poultry feed in the United States. Current literature clearly indicates DDGS, as alternative protein and energy sources beyond traditional SBM (protein) and corn (energy), have gained increased acceptance in some regions. This was due to a combination of concerted efforts over the last several years to improve its consistency and value proposition relative to mainly SBM. First, it can be a lower cost alternative that continues to be produced in large quantities by the dry-mill ethanol industry. DDGS also have high metabolizable energy, crude protein, crude fiber, crude fat, and more importantly, high phosphorous content. Table 1 provides a comparison of important nutritional characteristics for the main protein sources in the United States.
Table 1: Nutritional Composition of DDGS, Soybean Meal and Other Competing Feed Ingredients
DDGS has higher levels of phosphorus, which provides the monocalcium phosphate needed in hogs and other livestock diets. Monocalcium phosphate is very expensive, so replacing even a little bit of it will have an important impact on final diet cost. This extra phosphorus value in the DDGS compared to SBM makes DDGS very competitive with SBM. Although the DDGS price is generally moving along with corn, it must be valued in terms of what it replaces in a diet. DDGS can replace some corn as an energy supplement. Besides that, DDGS also can replace some SBM as a crude protein supplement and some phosphorus as well. These factors make DDGS very competitive in the feedstuffs market place.
There are some noticeable weaknesses and limitations in DDGS. When it comes to hogs, meat quality levels have been questionable with pigs fed a high concentration of DDGS diet. Meat packers are increasingly using iodine values to measure the levels of unsaturated carcass fat. Excessive DDGS levels in swine feed can push fat iodine values past acceptable levels. Hence, feeding DDGS in nursery and grower diets can start impacting carcass fat quality, as well as reduce carcass yield of market pigs. DDGS generally contains high levels of unsaturated fatty acids, which lead to an elevated unsaturated fat in the meat.
Due to the use of sulphuric acid in the process of making this feedstuff, DDGS may be high in sulphate, which increases the risk of sulphur toxicity in poultry diets. In addition, mycotoxins are another risk factor. Recent research shows mycotoxin concentrations can be about three-fold in DDGS compared to the original grain corn, due to the concentration non-starch components undergo during the distillery process. Recent research and product development on DDGS has helped to mitigate some of these limitations. The U.S. Grain Council has developed a detailed technical guide for DDGS inclusion in livestock and poultry diets.
Recent DDGS economic analysis done by Johnson (2016) identifies dynamic price relationships among DDGS, corn, soybean meal, and livestock prices by specific livestock sectors and their geographical location. He selected four livestock/poultry production regions based on species concentration: Iowa (hogs), Kansas (beef cattle), Georgia (broiler) and California (dairy). The results show Iowa has a strong dynamic price relationship among DDGS, corn, SBM, and hog price. This indicates DDGS in Iowa act as a substitute for both SBM (protein) and corn (energy) in the hog industry. The results suggest DDGS in Kansas mainly replace corn as an energy substitute in beef cattle rations, but not protein in SBM. The study didn’t find any significant linkage among DDGS, SBM and corn in the broiler industry in Georgia. DDGS in California is mainly used as a protein supplement in the dairy industry, replacing SBM.
This study, along with some recent applied economic literature, suggests DDGS have become an attractive partial replacement ingredient for other traditional energy and protein sources such as corn and SBM in livestock and poultry diets in the United States. An interesting policy question is — will this trend create some imbalance in the animal feed protein market in the future? We will leave the answer for our future research.
U.S. Energy Information Administration (EIA), 2017. Short-Term Energy Outlook (July 2017).
-------------------, 2017. Fuel Ethanol Supply and Disposition (July 2017).
Johnson, M.F. 2016. “Regional Dynamic Price Relationship of Distillers Dried Grains in U.S. Feed Markets.”, Master’s Thesis, University of Tennessee.
Hoffman, L.A., and A. Baker. 2011. “Estimating the Substitution of Distillers’ Grains for Corn and Soybean Meal in the US Feed Complex”, US Department of Agriculture, Economic Service, Report FDS-11-I-01, October.
USDA-ERS (U.S. Department of Agriculture, Economic Research Service), 2017. U.S. Bioenergy Statistics. (Accessed on 07-31-2017).
Jayasinghe, Sampath. 2017. “U.S. DDGS Production and Disappearance: New Dynamics on Animal Feed Protein Market”, Renewable Energy Report, Agricultural Marketing Resource Center, Iowa State University, August.