Measuring Supply-use of Distillers Grains in the United States
AgMRC Renewable Energy & Climate Change Newsletter
Daniel M. O’Brien, Extension Agricultural Economist
Kansas State University
As grain-based ethanol production has expanded in the United States in recent years, so too has the production of distillers grains, a co-product of dry mill ethanol production processes. Distillers grains in its various forms are used in livestock feed rations as a competitive substitute for feed grains and sometimes soybean meal. This article examines the projected supply and use of distillers grains in the United States during next decade, i.e., from the 2010-11 through 2019-20 feed grain marketing years, as well as the potential effect of the availability of distillers grains on U.S. corn use.
The February 2010 USDA Agricultural Baseline Projections of grain and livestock supply, use and agricultural commodity prices for the 2010 through 2019 period is used as an initial basis for this analysis. United States corn and livestock supply-use projections were taken “as is” from this source with only minor adjustments. See USDA Agricultural Baseline Projections.
USDA agricultural projections for 2010-2019
As stated by the USDA Economic Research Service, the USDA Agricultural Projections for 2010-19, released in February 2010, provide long run projections for the United States farm sector for the next decade. These baseline projections were used “as is” in this analysis with a few exceptions. First, the U.S. Renewable Fuels Standard requirement of increasing grain-based U.S. ethanol use (i.e., and implicitly, ethanol production) to 15 billion gallons annually by year 2015 was explicitly “forced” into the projection of U.S. corn supply-use for the period. Increases in U.S. corn use for ethanol production were directly offset by decreases in U.S. corn feed and residual use to maintain the projections of U.S. corn exports and ending stocks in the base 2010-19 U.S. Agricultural Baseline Projections. Second, some livestock population estimates by specific species and class were not explicitly identified in the U.S. Agricultural Baseline Projections.
Annual estimates of these non-identified livestock species and class populations were developed by estimating the historic relationship between the broader aggregates used in the USDA projection and historic species populations during the 2007-2009 period, and then projecting those relationships forward in the 2010-19 time period. Third, more current projections of U.S. corn supply-demand balances for the 2009-10 through 2010-11 marketing years were taken from the May 11, 2010 USDA World Agricultural Supply-Demand Estimates (WASDE). In particular, minor adjustments were made in the USDA’s February baseline projections to be consistent with updated projections of corn production, ethanol use, non-ethanol food-seed-industrial use, exports, and feed and residual use as indicated in the May 2010 WASDE report.
U.S. corn supply-use baseline
Adjusted baseline assumptions of U.S. corn use and ending stocks for the 2009-10 through 2019-20 marketing years are given in Figure 1.
Corn feed and residual use is projected to average 5.5 billion bushels (bb) per marketing year (MY) over this 10 year period, increasing to 5.8 bb in 2019-20 from 5.35 bb in MY 2010-11. Uses of corn for non-ethanol food, seed and industrial production are projected to average 1.355 bb per marketing year, increasing to 1.375 bb in MY 2019-20. Exports of U.S. corn are projected to average 2.29 bb per marketing year, increasing to 2.425 bb in MY 2019-20. Under current U.S. ethanol production policy (i.e., 15 billion gallons of ethanol used by year 2015, level production thereafter), use of U.S. corn and grain sorghum for ethanol production is projected to increase to 5.357 bb in MY 2015-16. Assuming 50 million bushels (mb) of annual use of U.S. grain sorghum for ethanol, then U.S. corn use for ethanol production would reach 5.307 bb in MY 2015-16 and succeeding years through MY 2019-20. After adjusting for the full implementation of the current Renewable Fuels Standard by 2015, U.S. corn ending stocks are projected to average 1.48 bb per marketing year, declining to as low as 1.281 bb in MY 2015-16 during the 10 year period
Potential U.S. DDGS Use by Livestock Species
Using U.S. livestock inventory projections provided by and implied from the USDA Agricultural Baseline Projections for 2010-19, and consensus University analyst assumptions about maximum DDGS inclusion and daily feed intake rates, it is possible to project the maximum amount of DDGS that can be used in feed rations by the U.S. livestock industry annually for the next decade. Figure 2 shows projected maximum U.S. livestock feed use by species groups and selected major categories within those species groupings for the 2010-11 through 2019-20 U.S. corn marketing years. The categories represented include a) dairy cows, b) beef cows, c) other cattle (feeder cattle, beef breeding stock, etc.), d) cattle on feed, e) swine (including both breeding and market swine), and f) poultry (including layers, broilers, pullets and turkeys). Projected species population numbers are available in the USDA Agricultural Baseline Projection for inventories of milk cow numbers, all cattle, beef cows, December 1st hog inventories, federally inspected young chicken and turkey slaughter. The species population numbers not expressly available in the USDA Agricultural Baseline Projection were estimated using historic relationships between meat or egg production by species and livestock populations.
For the period of corn MY 2010-11 through MY 2019-20, average maximum consumption of DDGS for dairy cattle is projected to be 7.3 million tons (mt) (10.9% of total maximum DDGS use). Beef cows’ average MY maximum DDGS use is 11.5 mt (17.2% of total DDGS). Average MY maximum DDGS use by other cattle is 16.5 mt (24.7% of total DDGS). Cattle on feed average MY maximum DDGS use is 17.9 mt (26.8% of total DDGS). Average MY maximum DDGS use by swine is 5.0 mt (7.4% of total DDGS). Average MY maximum DDGS use by poultry is 8.7 mt (13.0% of total DDGS). Taken together, beef cattle account on average for 45.9 mt and 68.7% of maximum potential DDGS use in the U.S. during the 2010-19 period.
The DDGS inclusion rates and average daily amounts of DDGS fed to dairy cattle, beef cows, other cattle, cattle on feed, breeding swine and market swine (Figure 3) and for broilers, layers, pullets and turkeys (Figure 4) were taken from previous University studies. The “base” rations represent the amounts used in the primary maximum DDGS use calculations in this study. The “base + 10% DDGS” and “base + 25% DDGS” scenarios represent the maximum DDGS inclusion rates (Figure 5a) and maximum per animal DDGS use (lbs. / head / animal) with 10% and 25% increases in daily DDGS feed intake, respectively.
Combined corn and DDGS supply-demand balance sheet
The combined corn and DDGS supply-demand balance sheet in Table 1 is patterned after the U.S. corn supply-demand tables provided in monthly USDA World Agricultural Supply-Demand Estimates (WASDE) reports. Along with estimates of corn usage for ethanol production, non-ethanol food, seed and industrial use, exports, and feed and residual use, this table also provides estimates of DDGS production, feed use and exports. A 1 pound of DDGS to 1 pound of corn weight relationship is assumed in this combined table, allowing for DDGS to be represented on the basis of 56 pound or “bushel” equivalent units (i.e., DDGS cn equiv). Four corn marketing years are used to represent the baseline combined “corn + DDGS cn equiv” supply-demand balance sheet in Table 1, i.e., the current 2009-10 marketing year, MY 2012-13, MY 2015-16 (i.e., when the current 15 billion gallon ethanol RFS will be fully implemented), and MY 2019-20 (i.e., the last period in the 10 year projection).
Table 1. U.S. Corn + DDGS Supply-Demand
|Base Ethanol & Livestock Feed Scenario (Billion Bushels)|
|DDGS Prodn. (corn equivalent)||1.336||1.460||1.611||1.611|
|Feed & Residual: Corn||5.375||5.300||5.500||5.800|
|Feed: DDGS (corn equivalent)||1.328||1.451||1.602||1.602|
|Non-ethanol FSI: Corn||1.330||1.350||1.350||1.375|
|Exports: DDGS (corn equivalent)||0.281||0.300||0.338||0.338|
|Total Use: Corn + DDGS||14.383||15.159||16.084||16.509|
|End Stocks: Corn + DDGS (=0)||1.738||1.652||1.218||1.403|
|% End S/U: Corn + DDGS||12.1%||10.9%||8.0%||8.5%|
Table 1 shows that both corn use and DDGS cn equiv production, feed use and exports are projected to increase until MY 2015-16 (in accordance with the current U.S. RFS), but then remain steady through MY 2019-20. Exports of DDGS are assumed to be 21% of annual DDGS production, following assumptions used by Wisner (2010) in a similar set of distiller’s grains supply-demand calculations on the Iowa State University Agricultural Marketing Resource Center website. As stated above, it is assumed in this supply-demand projection that U.S. corn exports and U.S. corn ending stocks are unchanged from original USDA Agricultural Baseline Projections. It is also assumed that all DDGS cn equiv produced are used in the same marketing year, i.e., that ending stocks of DDGS cn equiv do not accumulate in any appreciable amount due to their bio-degradable properties, and are therefore assumed to be equal to zero. Accordingly, only corn ending stocks are assumed to be non-zero in this corn + DDGS cn equiv supply-demand table.
Although appreciable ending stocks of U.S. DDGS cn equiv are assumed to not exist (equal to zero), positive amounts of DDGS cn equiv feed use and exports are accounted for in figuring total use of corn and DDGS cn equiv. Consequently, the percent ending stocks-to-use of corn plus DDGS cn equiv is marginally smaller than for corn alone (i.e., because total use of corn plus DDGS cn equiv is greater than total use of corn alone).
The conclusion can be drawn that if DDGS is a 1-to-1 substitute for corn in livestock rations, then standard U.S. corn supply-demand balance sheets at least marginally misrepresent livestock feed supply-demand balances in the U.S., implying a larger U.S. ending stocks-to-use ratio situation than actual exists when corn plus DDGS cn equiv are accounted for.
Future work on this subject may best involve an integrated, comprehensive grain and livestock market segment analysis and modeling effort to better capture and represent the competitive tradeoffs and directional changes in corn and DDGS use that may occur if and when higher ethanol inclusion rates are adapted. Whereas this analysis looked at the tradeoffs that would need to occur between alternative uses of corn and DDGS in order to maintain certain levels of U.S. corn exports and ending stocks over the coming decade should higher levels of ethanol use be allowed in blended fuels, it is likely that a more comprehensive modeling effort could better assess the relative profitability of alternative corn and DDGS uses over time, and also do a better job of determining which segments of the U.S. and World corn and DDGS use industry will be able to compete most readily and either retain or expand their share of U.S. corn and DDGS use over time (likely at the expense of their competitors).