High prices are likely making the byproduct of ethanol production too expensive for many Canadian livestock feeders
Exports of dried distillers grain from the United States broke records last year, topping 12.56 million tonnes. It was an 11 percent increase over 2014.
Canada accounted for four percent of that total, and American marketers think they can expand the percentage given the right price and quality options.
The low Canadian dollar has discouraged feed yards from importing U.S. DDGs lately, said Rob McMickell of Gavilon Group, a commodity management company in Omaha, Nebraska.
“In September, it looked like we were going be shipping a lot of feed up here … and we did. We shipped a pretty good amount in October, November, December. But currency alone from October to December, January added about $25 a metric tonne to the final price,” said McMickell.
He told a March 10 meeting in Lethbridge that DDGs are trading at 85 percent of the value of corn in the U.S., so they are in high demand among American feeders.
That value may not be attractive to Canadian operations now, said McMickell, but other international players and particularly China can quickly change the market.
“If China were to come in next month and buy 900,000 tonnes and take our DDGs price up to 120 percent of the value of corn, which is what we typically see when China does buy that much, you would think immediately there’s no way it will work in Canada,” he said.
“But if the (Canadian dollar) exchange rate would go from .75 to .95, it’s the exact same number. So just because China’s in the market, just because we’re high priced to U.S. corn, does not mean that we won’t work in Canada,” he said about the economics of DDGs.
China accounts for 34 percent of all U.S. DDG exports, but its volatile buying habits also create opportunities, McMickell added.
The price of DDGs goes up when China is buying heavily, which causes American feeders to remove it from the ration. As a result, marketers scramble to find other customers by offering attractive prices.
“China’s shipments are extremely volatile, but that provides a really, really good opportunity for the rest of the world to buy distillers grains at a value that’s way undervalued, and you guys can get a really good deal on it,” he said.
The makeup of DDGs has changed since the byproduct of ethanol production first went into wide use.
Plants are now able to extract more oil from corn, so most DDGs have seven to eight percent fat.
McMickell said there’s good reason for emphasis on oil extraction. Corn oil trades at $550 per short ton, while DDGs now trade at $120.
It’s obviously more lucrative for plants to sell oil than higher-fat DDGs, at least for now, but the price will drop and the gap between high fat and low fat DDGs will narrow if corn oil supply outpaces demand.
Ethanol plants can shift their oil extraction rates to take advantage of price.
McMickell said DDG buyers should specify their desired oil content and get it in writing. Dairy customers are typically more interested in protein than fat, and the beef business has different requirements.
“Cattle producers really want as much fat as they can get, and that’s almost always a topic of discussion when writing contracts.”