Biofuel co-products as livestock feed - Opportunities and challenges

An assessment of the potential demand for DDGS in Western Canada: institutional and market considerations 47730FIGURE 5Break-even analysis for maize DDGS utilization at a 20 percent inclusion rate2520151050-5Jan-10Feb-10Mar-10Apr-10May-10Jun-10Jul-10Aug-10Sep-10Oct-10Nov-10Dec-10Jan-11Feb-11Mar-11Apr-11May-11$CAN per head benefit for 20%maize DDGS feed-to-gain ratio$$CAN per head benefit for 20%maize DDGS average daily gainand feed-to-gain ratioNote that break even is paying up to 125 percent of the cost of barley for maize-based DDGS. There is a potential loss for rations where maize priceexceeds that of barley by more than 125 percent.sideration regarding the competitiveness of DDGS as aningredient is its energy and protein value vis-à-vis otherfeed ingredients. If formulation models are rigid, wheatbasedDDGS tends to be a substitute for protein-basedfeeds and maize-based DDGS tends to be a substitute forenergy-based feeds. Therefore, it can be deduced thatwheat-based DDGS attains a higher value as other proteinbasedfeed prices increase. Given other protein-based feedprices staying constant, the value of maize-based DDGSincreases and replaces wheat-based DDGS as the price ofenergy-based feeds increase (Boaitey, 2010). Discussionswith livestock producers in Western Canada revealed thatrations formulated without limits on protein are common(McKinnon, Univ. Saskatchewan, pers. comm.). Whenrations are formulated without an upper limit restriction onprotein, wheat-based DDGS, with its higher protein content,becomes more prominent.Supply chain logistics and economic impactsGiven the proximity of the Canadian and United States markets,especially regarding the supply of feedstocks for ethanolplants and consequent DDGS production, an importantmarket factor will be the exchange rate between theCanadian and United States currencies. Dessureault (2009)estimated that in 2010, 75 percent of Canadian ethanolwas derived from maize, 23 percent from wheat and 2 percentfrom other feedstock. Most of the maize feedstock isused in Eastern Canada, while wheat feedstock is used inWestern Canada. With the wheat-based ethanol plants inWestern Canada, there is little competition with livestockfeedlots, given the reliance of feedlots on barley as themajor ingredient for their feed supplies. However, when itis cheaper for ethanol plants in Western Canada to importUnited States maize for use as feedstock, rather than buywheat produced in Western Canada, ethanol firms will usemaize. When this occurs, the ethanol subsidies received bythe Canadian ethanol firms are essentially used to supportUnited States maize growers in the American Midwest, asopposed to grain farmers in Western Canada. This raises ahost of interesting policy issues that are beyond the scopeof this chapter.As noted above, the United States ethanol and coproductindustry is over 60 times the size of the Canadianindustry, producing over 30 million tonne of DDGS in 2009,compared with 0.5 million tonne in Western Canada. The800 000 tonne currently exported to Western Canadaaccount for less than 3 percent of total United States DDGSsupply. Some projections have the United States ethanolindustry tripling capacity over the next five years, whichwould also increase the supply of DDGS. One would expectthat, with the potential increase of supply, there would be acorresponding decrease in the price in Canada of importedmaize-based DDGS.As the Canada-United States dollar exchange ratefluctuates, the price of maize-based DDGS changes for thelivestock feed industry in Canada, and the competitivenessof wheat-based DDGS is affected. Given the currentstrength of the Canadian dollar vis-à-vis the United States