Milling & Baking News - December 4, 2007 - 15

Corn Wet Milling

Dealing with the growing supply
of distillers dried grains
One of the resulting components of
the increase in ethanol production is
an increase in feed produced. In the
production of ethanol from corn, the
starch in the corn is converted to ethanol by yeast. In the wet milling process the starch is separated from the
byproducts, converted to dextrose and
fermented. The byproducts produced
by this process are corn gluten feed
(21% protein) corn gluten meal (60%
protein) and corn oil.
In the dry mill process, the entire
corn kernel is used in the mash and
the starch is fermented using yeast,
leaving a residual feed product of distillers dried grains (D.D.G.).
Both processes for making ethanol
rely on the revenues of feed and/or oil

negative spread between rack ethanol
prices and gasoline prices - must
also deal with the growing supply
of D.D.G. This has tended to depress
D.D.G. prices and place dry millers at
a new corn cost disadvantage.
In this context, the International Distillers Grains Conference was held in
Schaumburg, Ill., on Oct. 21. The focus
was the future of the industry - how
to increase growth in consumption,
how to improve distribution and how,
if possible, to improve product consistency and quality and hence price.
Scott Richman, senior vice-president
of Informa Economics, presented a report titled, "The Supply & Demand for
Ethanol & Distillers Grains: Situation
& Outlook." The report provided the

Distillers grains production will increase
rapidly in line with ethanol output
(in thousand short tons, D.D.G.s equivalent)

35,000
30,000
25,000
20,000
15,000
10,000
5,000
0

1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09
Oct.-Sept. crop year

Source: Informa Economics

sales to support the economic viability
of the production of ethanol by reducing net corn cost. Currently, the recent
prices for corn gluten meal at $500 per
ton, corn gluten feed at $140 per ton
and most importantly corn oil at 57.5c
per lb have had a major positive impact on reducing net corn cost. D.D.G.
was quoted at $135 per ton in Chicago.
The higher priced byproducts of the
corn wet milling process created a net
corn cost advantage for wet millers
versus those ethanol producers using
the dry milling process. That advantage in the last few months has been in
the range of 20c to 40c per bu.
The ethanol industry - in addition
to the challenges of looming overcapacity, insufficient distribution infrastructure for ethanol and the record
16 / December 4, 2007

Milling & Baking News

backdrop against which to review the
improvements and alternatives presented by the rest of the speakers. The
most striking graph showed D.D.G.
supplies will more than double from
crop year 2006/2007 to the forecast of
32.17 million short tons in 2008/2009.
Just as the impact of additional ethanol supply has softened margins in
ethanol, it is likely that downward
pressure on prices will impact D.D.G.
The market for D.D.G. largely has
been a domestic market. In some
instances local dairies or feedlots
have provided regular offtake of wet
D.D.G., thereby reducing drying and
transportation costs. D.D.G. has had
to price its way into inclusion in rations. The easiest markets have been
ruminants, both dairy and beef cat-

tle tolerate the high fiber content in
D.D.G. Studies have been done that
show hogs and poultry may tolerate
higher levels of D.D.G. in their ration, but producers have been slow
to adopt these greater inclusion
rates, despite the high price of corn,
soybeans and soybean meal. Across
livestock typical inclusion rates of
10% to 20% would need to increase
rapidly to theoretical rates of 30% to
40%, if the domestic market is to expand adequately.
The next area to look for growth is
in the export markets. As might be
expected given logistical issues, both
Canada and Mexico have grown as
importers of D.D.G. over the last
three to four years. Mexico has an
expanding beef and dairy industry
and should continue to be a growing
market for U.S. D.D.G. The European
Union presents a far more difficult
picture. With imports of 800 tons as
recently as 2001/2002, it appears this
year's exports will be less than half
that total. The issue is bioengineered
corn, which continues to be an issue
in the E.U. This also has impacted the
entry of corn gluten feed and meal, as
well as D.D.G. The E.U. continues to
fight an effective "rear guard" action
against bioengineered crops. In the
short term the D.D.G. industry must
develop other export markets while
taking advantage of the E.U. window
when it is open.
The challenge of the expanding sales
of D.D.G. is partially due to the lack
of uniformity in the product from one
plant to another and from one batch
to another, in some cases. While these
differences will continue to exist, more
emphasis on standardized analysis
and reporting will be required.
While the D.D.G. issue is a significant challenge to the ethanol industry,
it is important to remember ethanol
production has been, by far, the most
successful alternative energy source.
Despite the harping in some quarters
of the media about corn prices, water
resources, etc., ethanol has provided
more renewable, usable energy in the
U.S. than any other source with the
exception of hydro-electric, which has
been around since the first grain mills
were set next to streams. MBN

Peter A. Meyer is president of
PMI Consultants, a Chicagobased consultant to the food
and agribusiness industry.

bakingbusiness.com / world-grain.com

http://www.bakingbusiness.com http://www.world-grain.com

Milling & Baking News - December 4, 2007

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