What DDGS means to ethanol equation
Most people talk about the number of bushels of corn going to ethanol plants. Few note that a portion of that ends up as byproducts, primarily livestock feed. Chris Hurt, a Purdue University Extension ag economist, says that distinction makes a difference when you’re embroiled in the food vs. fuel debate surrounding ethanol production.
• About 28% of corn going to ethanol plants ends up as mainly feedstuff.
• The price for DDGS is tied strongly to the corn price, with a link to soybean prices.
• The Chinese prefer buying DDGS instead of corn to avoid the GMO issue.
USDA only reports the number of bushels that go to ethanol plants, Hurt notes. It doesn’t break out how much of that corn goes for actual ethanol and how much ends up in other products, including feed products.
Hurt attempted to sort out that puzzle in a simple way. Collecting figures on his own, he estimates that about 72% of all corn coming into ethanol plants goes out as ethanol. The other 28% goes to produce byproducts, especially feed.
USDA estimates indicate 5 billion bushels of corn were used for ethanol production in 2011. Applying the Purdue estimate, and it’s strictly an estimate, 3.635 billion bushels went toward fuel, and 1.635 billion bushels went into making other products, primarily feed.
While this estimate is imperfect, it gives a more accurate picture of corn usage in the food vs. fuel debate, Hurt believes.
Here’s another way to look at the ethanol pie. If an ethanol plant produces ethanol and dried distillers grains with solubles, or DDGS, 80.5% of the value of its sales came from ethanol in 2011, and 19.5% came from DDGS, Hurt estimates.
The 2011 contribution from DDGS is somewhat higher than the five-year average, which is 18.4%. “The Chinese really like DDGS because they don’t worry about GMOs in DDGS,” Hurt observes. “If they buy corn from the U.S., they can have consumer push-back about GMOs.”
DDGS prices are strongly related to corn prices, Hurt says. He has looked at and charted weekly prices for Iowa DDGS per ton and Iowa corn prices per bushel, using USDA sources. “About 88% of the variation in DDGS prices is explained by variations in corn price,” he notes.
Soybean meal prices would also have some importance, he adds. DDGS typically have 20% or higher protein content, meaning they have nutritional value as protein as well as energy.
During one week near the end of December 2011, Iowa corn was $5.64 per bushel, and DDGS were $183.50 per ton. That price for DDGS is somewhat higher than a trend line based on a graph of DDGS prices vs. corn price would indicate, Hurt says. The currently relative higher price for DDGS could be due to protein source prices, namely soybean prices, he adds.
Another possibility is that it’s related to Chinese preference. It’s possible they may pay a premium above the nutritional value to buy DDGS rather than buy corn, Hurt concludes.
Corn use for ethanol and byproducts
Source: Chris Hurt, Purdue University
Weekly Iowa corn prices and Iowa distillers prices:
September 2007 to present
Source: USDA, chart provided by Chris Hurt, Purdue University
This article published in the February, 2012 edition of INDIANA PRAIRIE FARMER.
All rights reserved. Copyright Farm Progress Cos. 2012.