An agricultural economist is forecasting an explosion in the amount of U.S. distillers grain available for export over the next two years, which will provide stiff competition for Canadian feed barley.
“We’re looking to export a pile of this stuff, and Canada would be a logical place,” said Purdue University professor Frank Dooley.
U.S. corn ethanol plants are already producing a lot more byproduct than can be consumed locally.
In 2008, they churned out an estimated 27.2 million tonnes of the feed ingredient, 4.2 million tonnes of which had been exported as of the end of November.
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Canada imported 710,403 tonnes over that 11-month period, second only to Mexico, which bought 1.07 million tonnes.
With rapidly rising ethanol mandates, there will soon be a lot more product available for export.
Dooley forecasts 43 million tonnes of distillers grain production by 2010. Some industry analysts say that won’t be a problem because there will be as much as 60 million tonnes of domestic demand for the product.
However, Dooley said that estimate is based on the assumption that virtually every farm animal in every state will consume the ethanol byproduct.
He thinks a more realistic demand figure is 30 million tonnes, which would leave an exportable surplus of 13 million tonnes in 2010, a sizeable portion of which will be heading north where it will compete with Canadian feedstuffs such as barley.
“We’re just going to be buried in the stuff.”
Doug Price, vice-chair of the Alberta Cattle Feeders’ Association, said there was plenty of interest in U.S. distillers grain for much of 2008 because of barley prices cresting the $5 per bushel mark.
“The DDGs were coming up from the States really fast and furious,” he said.
After the first four months of the year, an agricultural economist at Kansas State University predicted a 1.7 million tonne export program to Canada, but interest in the product tailed off dramatically in the fall when barley prices dropped back to $4 per bu.
In September, Price pulled the ingredient out of rations on his feedlot near Acme, Alta., and hasn’t fed it to his cattle since. However, he has spoken to friends in southern Alberta who say it has recently become a competitive ingredient again in that region.
Neil Campbell, manager of business development with Gowans Feed Consulting, which has a contract with the U.S. Grains Council to help develop demand for distillers grain in Canada, thinks sales may taper off in 2009.
“I think we’ll be challenged to import the same amount this year,” he said.
For distillers grain to be incorporated into cattle diets, it needs to be priced at a 10 to 15 percent premium to barley, which hasn’t been the case early in the new year.
However, for the long-term outlook, he agreed with Dooley that there is potential for sales growth.
“Canada is a market that has the potential to import one million tonnes of distillers grains.”
Price said if a glut of the magnitude Dooley suggests materializes in the United States, the price of distillers grain will drop and Canadian feedlots will bring train loads of distillers grain across the border.
However, that won’t necessarily result in a competitive advantage for Canadian feedlot operators, he added. U.S. feedlots will have access to the same ingredient, only at a $60 per tonne transportation discount.
That is why Price would rather buy distillers grain from western Canadian ethanol plants, although he said wheat distillers grain has an inferior energy content compared to their corn counterpart.
Dooley said there used to be a lot of variability in the quality of corn distillers grain, but that has changed in the last two years as slumping ethanol margins force plants to pay more attention to the byproduct.
“The industry woke up and most of the guys making ethanol today are awfully good about worrying about the quality of the DDGs,” he added.
Price has the opposite view. He is worried that the quality of distillers grain is dropping as ethanol producers have become better at extracting more energy from their corn.
