Changes to biofuel targets not expected to radically alter market for DDGs

By Aerin Einstein-Curtis contact

- Last updated on GMT

“In the big picture, I think there will be plenty [of DDGs] to go around, I don’t see domestic demand growing rapidly." said University of Illinois economist Darrel Good
“In the big picture, I think there will be plenty [of DDGs] to go around, I don’t see domestic demand growing rapidly." said University of Illinois economist Darrel Good

Related tags: Ddgs, Ethanol fuel, Fodder

The US market for distillers dried grains (DDGs) is not likely to see wild fluctuation even if less ethanol is produced domestically than once expected as a reaction to changes in biofuel policy.

DDGs, used in livestock feed, are a by-product of the process used to generate ethanol by the biofuel industry.

There has been public debate around the likely amount of ethanol to be produced by the biofuel sector to meet the revised estimates in the Renewable Fuel Standard (RFS) put forward by the US Environmental Protection Agency (EPA) in May 2015.

The amounts in the proposal call for 13.4 billion gallons of renewable fuel in 2015 and 14 billion gallons in 2016. These are less than the amounts put forward in the RFS included in the 2007 Energy Independence and Security Act. A final decision on the new targets isn’t set to be made until the fall.

The reported aims of the RFS are to promote growth in the renewable fuel sector, curb greenhouse gas emissions through use of renewable fuels and decrease the import of fuel.

The reduced amounts suggested in the revised RFS have been generated by the understanding that the initial requirements were hard to attain, University of Illinois economics professor Darrel Good told FeedNavigator.

“What the EPA has done is they’ve interpreted the lack of certain infrastructure as representing a supply constraint,”​ he said. The decision has been a controversial one, he added.

'Plenty to go around'

Even with a plateauing of the ethanol being generated, the amount of DDGs produced won’t cause a scarcity, he said. Though the period of rapid growth for both ethanol and DDGs may be cooling, it is unlikely to move backwards, said Good.

“In the big picture, I think there will be plenty to go around, I don’t see domestic demand growing rapidly,”​ he said.

“In general DDG prices tend to follow corn prices,”​ he said. “At periods of the year, DDGs appear to carry a premium and at other times are priced one-for-one to corn, (and) I don’t think they’ll stray too far from corn prices.”

Though popular as an animal feed, there isn’t an expectation that more ethanol would be made to increase the supply of DDGs, said US Grains Council chief economist Mike Dwyer. However, if there is enough of a demand for DDGs that the price increases, it may cause some producers to dry more wet distiller’s grains to add to the market, he added.

Support from the international market

During the last five years, there has been interest in US DDGs exports from China and Mexico. 

And international buyers have shown themselves willing to pay a premium price for the product, said Alvaro Cordero, a manager of global trade for the US Grains Council.

“Global markets have understood the quality and how to ration the use in their feed,”​ he said. “Compared to the price right now, which is depressed, people have paid a significate premium; they’re not buying it because it’s cheaper, they’re buying it because they value it.”

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