RFS waiver could mean increased feed costs for livestock, poultry

By Holly Jessen | October 10, 2012

A study of the impact of a possible renewable fuel standard waiver concluded that corn prices would only be reduced between 46 and 48 cents per bushel and that, in some cases, the price of distillers grains and soybean meal would actually increase. “When viewed in the context of changes in the prices for other key feed ingredients such as distillers dried grains with solubles (DDGS) and soybean meal, the change in total net feed costs for livestock, dairy and poultry feeders would either increase slightly or decrease by a negligible amount if a waiver was granted,” wrote economist John Urbanchuk, author of the study. “This is due to the fact that if a waiver reduced biofuel output, it would also reduce the available supply of DDGS and soybean meal, which would naturally lead to higher prices for those key feed ingredients.”

The results of the 14-page analysis, which was commissioned by the Renewable Fuels Association and conducted by Cardno-ENTRIX, were announced Oct. 10. Comments on the RFS waiver request will be accepted through Oct. 11. Comments can be submitted at the Regulations.gov website under EPA-HQ-OAR-2012-0632 or using a form on the Choose Ethanol website.

“Most of the analyses conducted to date have only focused on the potential impacts of a waiver on corn prices,” said RFA President Bob Dinneen in a prepared statement. “But what’s important to consider is the overall net effect on the cost of feeding livestock and poultry. Corn is only one feed ingredient for typical livestock and poultry rations, and DDGS now comprises one-fifth to one-half of most livestock and poultry rations today. We don’t believe a waiver would have much impact on ethanol production in the near term; but if a waiver did in fact reduce production, supplies of DDGS would also be reduced and prices would increase. Clearly, the governors and the livestock and poultry groups supporting a waiver did not consider the impacts of a waiver on the prices for feed ingredients other than corn.”

The Cardno-ENTRIX analysis production would be reduced by 500 million gallons, or by 3.7 percent compared to 2012 levels, and biodiesel production would be reduced by 500 million gallons, or 50 percent. The high scenario was a 1.425 billion gallon reduction in ethanol production and the same 50 percent reduction in biodiesel production.

In the low scenario, the analysis said the decline in ethanol production would result in slightly more corn used for feed and exports plus a modest increase in ending stocks. Corn prices would fall 5.5 percent, or about 46 cents per bushel while soybean prices would fall 74 cents per bushel, or 4.5 percent. “Initially these reductions seem beneficial for the livestock, dairy and poultry industry,” the report said. “However, lower ethanol output reduces production of DDGS by 4 percent and smaller soybean crush results in an anticipated reduction of 10.2 percent in soybean meal output. In both cases these reductions are expected to result in higher prices: $20 per ton, or 6.5 percent for DDGS and nearly $33 per ton, or 6.7 percent for high protein soybean meal.”

The results of the high scenario were that corn feed demand increase and more corn bushels are exported, with a modest increase in ending stocks. In this case, the price of corn was projected to only decrease by 5.8 percent, or 48 cents per bushel, which is only 2 cents per bushel more than in the low scenario. Lower ethanol production reduces DDGS output by 11.4 percent and a smaller soybean crush results 9.3 percent less soybean meal output. This is expected to result in a 6.2 percent increase in distillers grains prices, or $19 per ton, and a 5.2 percent increase in soybean meal prices, or nearly $26 per ton. “As pointed out above, increases in DDGS and soybean meal prices offset declines in corn and soybean prices, and result in a minimal impact on net feed ration costs,” the report said.

Looking at the total cost of rations, a moderate reduction in ethanol output (the low scenario) would increase net feed costs for dairy cattle by more than 4 percent and swine, broilers and layers by less than 1 percent. On the other hand, if ethanol production were to reduce by a larger percentage (the high scenario) there would be net feed reductions of less than 1 percent for swine and broilers. The feed costs for dairy, however, increase by 3.2 percent and layers by 0.1 percent.