DDGS Needle Trends North

The domestic market adjusts to lower oil levels, higher prices and protein demand as it anticipates lower fiber content ahead. Another unusual year is expected, with protein as the big story.
By Susanne Retka Schill | November 21, 2013

The domestic distillers grains market is expecting another unusual year. In 2012, it was high corn prices, drought-reduced supplies and spotty aflatoxin issues. This year, the story is protein. 

“The world is short of protein,” says Randy Ives, director of ethanol services at Gavilon LLC.  In addition to supplying energy in rations, distillers grains is a good midlevel protein source increasingly sought out by foreign buyers. “It’s changing production flows, availability and pricing,” he explains. In the past, dried distillers grains with solubles (DDGS) was generally priced around 85 percent the price of corn. “Right now, dried distillers is worth somewhere north of 100 percent the price of corn, and there’s some transactions recently that were 120 to 130 percent the price of corn. Those kinds of numbers are needle movers.” 

With that sort of export price pull, U.S. buyers are taken aback. “Our domestic market consumers are going, ‘Whoa, what’s going on, this isn’t normal, why are you priced so high?” Ives says. But there aren’t many substitutes in rations for domestic livestock feeders, either, he points out. “Soybean meal is at $410 today in the futures market. We’re looking at distillers at 50 percent of that on a flat price basis.”

While the midlevel protein levels in DDGS work to substitute for some high-priced soybean meal in swine and poultry rations, beef producers are the most troubled by the market shifts. “They aren’t feeding distillers for protein, they’re feeding it for energy,” Ives points out. With the vast majority of ethanol plants now spinning out corn oil, cattle feeders are left with lower-energy DDGS that in this year’s market is priced higher than corn. As a result, the beef industry is adjusting by feeding less distillers, Ives says, which in turn means more ethanol plants in the Beef Belt—Nebraska, Kansas, Texas, Oklahoma—are turning their dryers on. With a tight situation for containers and bulk vessels, he continues, “The product leaving the U.S. is going at a premium to anything we’re trading in the domestic. Typically we ship 25 percent to exports; that number’s going to go up. What the domestic consumers don’t want, we’ll put in the export market and get a premium, but there’s no way that we can logistically ship everything out. That should be reassuring for our domestic customers.”

Oil Adjustments
By far the biggest adjustment in the distillers grains market in recent years has been for reduced-fat DDGS. Feed rations have been adjusted to the new norm of 7.5 percent residual fat, compared to the full-fat traditional distillers from a few years ago that came in at 10.5 to 11 percent residual corn oil. “We haven’t seen negative financial impacts of pulling that corn oil out,” Ives says. Ethanol plants are able to sell the oil at 30 to 35 cents a pound, which would amount to $600 to $700 per ton, with the reduced-fat distillers still selling at a reasonable value, he adds, saying that leaves the livestock guys scratching their heads. “We’re taking something of value away and charging more, but that’s because we’re in a protein year.”

Product Evolution
The market adjustments to de-oiled distillers and its value as a midlevel protein source are just the latest developments in the ethanol coproduct story. Distillers grains is, after all, a relatively new feed ingredient that continues to change as the ethanol industry evolves. 

Charles Staff, executive director of the Distillers Grains Technology Council, ticks off the issues that have come up in recent years: sulfur content, E. coli, mycotoxins, antibiotics, composition variability and flowability. “Most of them are not completely put to bed, and they may raise their heads in the future,” he says.  The sulfur issue, for example, popped up in two states this past year, with distillers grains quickly being ruled out as a possible source in both cases. High sulfur levels can cause cattle deaths from a condition commonly called polio, explains Staff. A few years back, ethanol producers learned that sulfuric acid used for cleaning was sometimes concentrating in the coproduct and adjusted accordingly. E coli became a concern when studies found elevated levels in cattle that were fed distillers grains, but further investigations couldn’t recreate the buildup, so it remains inconclusive, Staff says. Mycotoxins are now better understood as weather-dependent, geographically spotty issues, followed closely in each state by university feed and livestock specialists. The antibiotic residue issue arose five to eight years ago over concerns that antibiotics could end up in eggs, and thus directly impact human food. The use of alternative measures has grown and more care is being taken, quieting those concerns somewhat. “These are issues where we’ve got to maintain vigilance to avoid having them arise again,” Staff says. He urges ethanol producers to become knowledgeable, “know what these issues are about so if they pop up with your customers, you know how to respond.”

The current regulatory issue being worked through with the U.S. Food and Drug Administration’s Center for Veterinary Medicine, Staff adds, is a new definition for distillers grains to replace the first one that dates back to 1915. “There’s been some minor changes over the years,” Staff says, “but now they’re saying, ‘We don’t think it reflects all the changes out there. We have people coming in and applying for variations.’” One issue, for example, is the proper labeling of the new variations of de-oiled distillers. Staff expects the new ingredient definitions will be ready in midwinter.

Flowability is another issue that hasn’t totally gone away, says Kurt Rosentrater, assistant professor in biological and process engineering and technology at Iowa State University. “The ethanol plants and the marketers are getting much better at identifying the loads that may have problems and sending them to facilities that have specialized unloading equipment.” While some report they’ve seen a big reduction in flowability problems with low-oil distillers, Rosentrater says his research hasn’t. “Oil content isn’t it,” he explains. “And, most plants do a great job of drying, so it’s not really a moisture issue.” The three big factors contributing to sticky particles, he says, are inconsistent soluble levels, incomplete fermentations and too-wide a range of particle sizes. While it’s not easy to segregate problematic DDGS for separate shipping, “companies are getting better at being able to do that," he says.”

Up Next: Fiber Removal 
The next market changer will be fiber removal, either from enzymatic conversion to cellulosic ethanol or through fractionation to remove the fiber as a separate coproduct. “There’s a lot of value in the fiber for the ruminant market but also some nutrient value for monogastrics,” Rosentrater says. “If we pull fiber out we’re going to see differences in how poultry and swine respond.” Inclusion rates and substitution values will shift as a result. As an example of the possible impact, Rosentrater notes that removing some of the fat has made a big difference, with swine feeders in the Midwest constantly increasing the amount of distillers being fed. Some inclusion rates are now at 20, 30 or even 40 percent in certain rations for specific age ranges. 

Ives estimates that the swine industry’s share of the distillers grains market has grown from an estimated 12 percent several years ago to approximately 18 percent. Poultry has grown from about 8 percent to closer to 10. And, where ruminants used to take up to 80 percent of the total distillers grains supply, beef is now about 45 percent and dairy around 26 percent. 

Solid information about distillers use in the domestic market is lacking, Rosentrater says. He’s initiated a survey of beef, dairy, swine and poultry producers, asking what coproducts are fed and inclusion rates, what the distillers is displacing and about any problems encountered. He expects to close that survey and begin the analysis by the end of the year. That will be followed by a nationwide survey of ethanol producers to get a better picture of the flip side, asking what coproducts are being produced, whether they are de-oiling and how, customer acceptance and any problems or issues they’ve discovered. That survey is being tested in Iowa before the national release. The results should inform researchers and marketers where to focus their efforts.

Ives describes the growing diversity in distillers coproducts on the market, as different flavors, pointing out that distillers grains is far from being a uniform commodity. Every time the industry does something new, he says, the resulting coproduct virtually requires identity preservation. A Minnesota swine producer, he gives as an example, is wise to “know what every plant is doing. Know the prices. They can put it in the computer and see what is the best buy for next week.” More issues arise, he adds, from distant feeders who may buy truckloads through the reseller chain, without knowing the plant specifications. That isn’t as big an issue in ruminant feeds as for poultry or swine, he adds.

Future Options
Looking ahead, Staff mentions other possibilities for distillers grains use. A Nebraska firm recently built a facility to process distillers grains as a component of plastics, which he adds is likely to raise the question of sustainability. And, with his  experience in the food industry, he believes there are potential food uses for distillers grains. There’s also a growing market that could be tapped in fish feed. “Nobody’s doing it commercially, but we know it works well,” he says, adding that inclusion rates for some species can be as high as 40 percent of the ration.

High-protein products are another possibility, Ives says. If the corn fiber is removed entirely, and not just fermented, they are seeing 48 or 52 percent protein levels in the distillers. “That is unique, it’s more than soybean. And it kind of looks like corn gluten meal,” he says. Corn gluten meal gets a premium from poultry producers because the xanthophyll content keeps egg yolks yellow. “People are talking about extracting xanthophyll in the dry mill process,” Ives adds. “There’s a whole variety of products like that. Is it going to move the needle for the whole industry? No. But if it helps 4 percent or 8 percent of the industry be stronger, where we know that those plants are going to thrive, the whole industry will be stronger. Other plants will look at other methods. Not everybody’s going to take the same pathway.” 

Author: Susanne Retka Schill
Senior Editor, Ethanol Producer Magazine