Ethanol oversupply situation may mean DDGS price increase

By Holly Jessen | March 02, 2012

With ethanol plants slowing production or even idling in response to tight margins and oversupply, a South Dakota State University economics adjunct professor is advising cattle feeders to consider changing their seasonal habits and lock in price or physical supply of distillers grains.

“Right now, I think the slowdown of ethanol plants is likely to make this a year when DDGS prices don’t follow that seasonal trend, but instead stay stable or increase,” Darrell Mark, a former Extension livestock marketing specialist at the University of Nebraska-Lincoln, told EPM. “Another factor is that demand for coproduct feed might increase a little due to winter weather—for cow/calf operations that use the feeds as a supplement, or to the extent that daily intake increases in feedlot cattle.”

In February, prices for DDGS, wet distillers grains with solubles and modified wet distillers grains with solubles were slightly higher than levels a year ago. This is due to declining coproduct production, higher cattle on feed inventory and additional use in swine production, he said.

The trend may continue. Typically, distillers grains prices decline going into March as much as 7 percent—meaning buyers purchase supplies on an as-needed basis. By buying hand-to-mouth, livestock feeders have on hand only what they need to get through the next day or week, he said, adding that they can purchase more later as the price slides down. Then, later on in March, they lock in their needs for April and May. That strategy may not play out the best this year, however. “While adherence to the seasonal trend could occur in 2012, it would be prudent for coproduct buyers to prepare for stable to rising prices,” Mark told EPM.