Ethanol producers benefit from higher margins for distillers grains
The abundant 2013 corn harvest lowered the price of corn, a key input to ethanol production. In addition to lower corn input costs, ethanol producers are also benefiting from improving margins for dried distillers grains, an important supplement for animal feed that is the major co-product of ethanol production from corn. Sales of dried distillers grains provide a significant portion of the total revenue received by ethanol facilities, underpinning the economic feasibility of ethanol fuel production.
From January 2012 through the last week of December 2013, the average price of corn delivered to Iowa ethanol plants was $6.61 per bushel ($236 per ton). Over the same period, the average revenue from sales of dried distillers grains was $2.00/bushel of corn used for ethanol production ($234/ton of distillers grains). Recently, margins for the production of ethanol and dried distillers grains have increased because of the sharp drop in corn prices after the 2013 harvest, combined with increased export demand for distillers grains.
Dried distillers grains may be produced in wet, modified, or dry form. When ethanol plants remove most of the water and dry the product, they can add back the vitamins and minerals that are initially drained out with the water at the end of production, creating dried distillers grains with solubles (DDGS). While not suitable for all livestock feeding applications, DDGS have several attributes that make them valuable:
• Farmers can blend DDGS into feed for a variety of livestock, including meat and dairy cattle, swine, farm-raised fish, sheep and goats, as well as horses, rabbits, and dogs
• DDGS is cheaper to transport and has a longer shelf life than grains with a higher moisture content
• DDGS can be easily mixed into corn or soy meal in varying concentrations designed for each animal’s dietary needs
• It is relatively easy to extract the corn oil content of DDGS to make feed for animals that benefit from reduced corn oil diets
In addition to supplying the domestic agricultural sector, demand for DDGS is growing in foreign markets. During 2013, total DDGS exports reached 9.7 million metric tons, more than double the 4.5 million metric tons of total exports in 2008. China has played a key role in driving this growth, with total DDGS exports to China rising from 1.4 million metric tons in 2011 (18% of total U.S. export volumes), to 2.2 million metric tons in 2012 (29% of total U.S. exports), and 4.5 million metric tons in 2013 (46% of total U.S. exports), according to U.S. Department of Agriculture data.