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Co-Product Dependent

Minnesota cattle feeders Roger Gilland and Glen Graff live in the heart of ethanol country. Every other day, a truck from Minnesota Corn Processors (MCP) in nearby Marshall, pulls into Gilland's feeding operation in Morgan to deliver the wet corn gluten feed (WCGF) that makes up 40% (as-fed basis) of the finishing ration in his 2,000-head-capacity feedyard. It works out pretty well for us because

Minnesota cattle feeders Roger Gilland and Glen Graff live in the heart of ethanol country.

Every other day, a truck from Minnesota Corn Processors (MCP) in nearby Marshall, pulls into Gilland's feeding operation in Morgan to deliver the wet corn gluten feed (WCGF) that makes up 40% (as-fed basis) of the finishing ration in his 2,000-head-capacity feedyard.

“It works out pretty well for us because it's a lot of good product,” says Gilland, who's fed WCGF since 1990, mixing it in a finishing ration with 47% shelled corn and 10% earlage. “It takes a little management because of the wet product's shelf life, but the cost and performance is better than corn,” he adds.

Meanwhile, Graff of nearby Sanborn utilizes a total of 75 tons/month of dry distillers grains (DDG). A couple of times each week, he hauls a 15-ton load from the Ethanol 2000 LLP plant 20 miles away in Bingham Lake to his 1,000-head capacity yard. Graff has fed DDG since the plant opened in 1998.

“I've been real happy with it. Because it's a cheaper protein source, we now feed a higher level of protein, and our gains are better,” Graff says. “And, the dry product works better for me because I feed a lot of corn silage.”

An Ethanol Growth Binge

The two ethanol plants supplying these co-products are among a total of 14 ethanol production facilities currently operating in Minnesota. Just over the border to the south, Iowa also can claim 14 plants, nine of which are on stream and five under construction.

Together, the two states comprise more than a third of the nation's total of 74 ethanol production facilities either in operation or under construction (see Figure 1). The Renewable Fuels Association (RFA) estimates that by the end of 2002, total combined production capacity of fuel ethanol in the U.S. will be 2.738 billion gallons/year. And, for the first time, the majority of the production capacity will be controlled by farmer-owned plants, says Monte Shaw, RFA communications director.

Ethanol production is on a growth binge. With the recent flare-up of unrest in the oil-rich Middle East serving to underscore the urgency, the U.S. is fixed on developing its domestic sources of energy. The Midwest, with its prodigious corn production capacity and a sagging farm economy, is understandably receiving a lot of attention.

A coalition of renewable fuel producers and agricultural and environmental groups is urging the U.S. Senate to enact a renewable fuels standard (RFS) as part of its energy package. Such a standard would require that renewable fuels such as ethanol and biodiesel make up a certain percentage of the nation's fuel supply. Under the legislation, the RFS requirement would increase from 2 billion gallons in 2003 to 5 billion gallons in 2012.

The proponents of S.517 say such a standard would reduce the nation's reliance on foreign energy, in addition to being more environmentally friendly by reducing tailpipe and greenhouse gas emissions. Besides that, they argue, it would stimulate rural economies and reduce the frequency and severity of future price spikes.

“We're hopeful, and the odds are, that the RFS will be the law of the land,” says Shaw. “We think there's broad support for the bill and, while there might be some tweaks made here and there, we feel that what is there now will be the legislation at the end.”

More, But At What Price?

The prospect of that eventuality has some in the beef industry eagerly anticipating a plentiful supply of by-product feeds.

“The state of Kansas now has five ethanol plants, and projections call for that to double within three years,” says Dale Blasi, Kansas State University Extension beef specialist in stockers and forages. “That's a great new source of by-product feeds and offers tremendous opportunities for low cost of gain.”

There are also others, however, who are anxious over how the increased ethanol production will impact the price of feed corn.

“A few producers see an ethanol plant as a competitor to a feedyard. But, frankly, with corn at $2, it's not number one on the plate,” says Jay Truitt, head lobbyist for the National Cattlemen's Beef Association (NCBA). Truitt says NCBA supports the RFS proposal with some minor modifications.

“The concerns are much less than they were a few years ago,” Truitt adds. “Still, people realize it could have an impact on the marketplace.”

Shaw says that with successful passage of the RFS, he expects to see some increase in corn acreage, as well as perhaps a bump in corn yields to meet the standard set for 2012.

“But you'll also see a lot more corn go directly through an ethanol plant. The feed co-products will then go into the cattle industry, for example, as opposed to the corn going directly into the cattle industry,” he says.

“I think you'll see some pretty fundamental shifts in the valuation of both corn and the feed co-products. It's a higher quality product; it will be available in greater quantities, and it would be hard to argue that it would be anything but more affordable for the beef industry,” Shaw adds.

Will the price of corn go up with an RFS? Shaw says, “Probably. We hope so, and I think farmers hope so. But at the same time, you'll find that some folks currently not using the higher-value distillers grains will be able to take a look at them as the supply goes up.

“You can't just look at corn price, but what happens to the distillers grain market and other co-products as well. That will be very beneficial for the cattle industry,” he says.

Better Predictability

Ethanol co-products were a focus of a recent Land O'Lakes Farmland Feed cattle feeding seminar in Sioux Falls, SD. Evan Vermeer, a beef technical consultant with Quality Liquid Feeds, says ethanol production co-products “are breaking into upper Midwest cattle feeding in a big way.”

Vermeer says the beef industry has long used corn gluten feed and steep water from wet mill plants, so called because the corn is soaked before grinding and processing. In addition to ethanol, wet mill plants have the ability to make several edible human products such as starch, sweeteners and oils.

Dry mill plants, on the other hand, grind the grain before soaking, hence the name. Such plants are cheaper to build and are geared for strict quality control for the ethanol, he adds. As a result, the inconsistency of the resulting feed products historically made it more difficult to formulate them into ruminant diets.

That's changing, however, Vermeer reports, as the production facilities have begun to focus on the quality issues of the by-products. “This will increase their value to cattle feeders,” he says.

Shaw agrees. “Our industry understands that with a renewable fuels standard, there's going to be a heck of a lot more distillers grains out there, and that will become a bigger part of the business,” Shaw says. “Certainly from a marketing standpoint, we're putting a lot of time and effort into looking how that end of the market is going to shape up.

“When you market something, you obviously want to have a quality product to market. So the feed co-products are certainly not an afterthought,” Shaw says.

Co-Product Believers

Gilland contracts his WCGF on an annual basis with the price tied to the corn price. The cost of transportation is included.

“We don't evaluate it on a cost basis anymore because our price is based on a percentage of the corn price. So we know we're guaranteed a savings, and we can actually get a little better performance by using it,” he says.

He stores the feed in an open bunker, with a semi-load lasting about two days. No more than a four-day supply is ever kept on hand, he says, and considerably less than that in the summer.

“In the winter, we'll keep a little extra on hand just in case the weather prevents delivery,” Gilland says. “In the summer, we have to manage our supply a lot tighter. The shelf life is not very long, and there's little room for error. And in feeding it to the cattle, we have to be real careful to match the cattle's consumption levels.”

Gilland says he prefers the wet product to a dry form.

“A lot of these dry mill plants want to dry the feed, but we went back to the old research and found that the wet feed has more feed value than the dry,” he says. “Plus, it makes more sense for these plants to sell wet feed. Drying it down wastes a lot of natural gas.”

Graff says anyone considering DDG must have inside storage.

“With a dry product, it will blow away if you don't have it stored inside. Plus, if you're going to feed dry, you need other feedstuffs that are wet or you'll get separation in the feed bunk,” he says.

Graff contracts for his DDG but only if it works on a cost basis.

“Sometimes it just doesn't work, but I've never had a problem with availability. And as we get more plants on line in Minnesota and northern Iowa, it should be even more available,” he says.

Graff recommends working with a nutritionist in formulating a ration with DDG because the fermentation process alters the mineral balance.

“And you have to watch the sulfur levels because the process concentrates the sulfur. If you have high sulfur levels in the water, it can multiply your problems there as well,” he says.

“I think the dry product works great for smaller producers because you don't get the mold and heating that you would with wet product,” he says.