Biofuel co-products as livestock feed - Opportunities and challenges

42Biofuel co-products as livestock feed – Opportunities and challengesIn the early 2000s, some ethanol plants and DDGSmarketing groups attempted to respond to the demandsfrom their DDGS customers to implement more extensivequality assurance programmes focused on DDGS in orderto provide a more consistent quality. These attempts failedfor several reasons. First, the primary economic focus ofethanol plants was on ethanol production and not theco-products when ethanol profits were high. Second, aslong as ethanol plants were able to “get rid of” their DGin a timely fashion there was little economic incentive toinvest time and money in developing a programme toimprove DDGS quality and consistency because there wasno guarantee of a price premium or financial return for thisinvestment.There were also formal and informal attempts to formcoalitions among segments of the ethanol and maizeindustry to develop strategies to differentiate the DDGSthey were producing from other DDGS sources on themarket. With the exception of a few ethanol companiesthat developed branded co-products, these attempts alsofailed. Many ethanol companies did not want more transparencyand methods to differentiate quality in the market,perhaps out of fear that the co-products they were producingwould be discounted in price relative to competitorsources. Furthermore, there were legal concerns related tothe risk of being accused of market collusion that preventedthese early efforts from materializing. However, in autumn2005, the American Feed Industry Association (AFIA), theRenewable Fuels Association (RFA), and the National CornGrowers Association formed an industry-wide initiativeto focus on two aspects related to DDGS quality issues:first, to cooperatively design a study that would lead torecommendations on the most applicable analytical testingmethods for DDGS; and, second, to review the applicabilityof current American Association of Feed Control Officials(AAFCO) and AFIA definitions of distillers co-products. Theoutcome of this effort was published in a final report byAFIA in February 2007. The committee provided recommendedanalytical testing methods for moisture, CP, crudefat and crude fibre. These recommendations were neithermandatory nor regulated by the government, but werevoluntary to encourage all DDGS suppliers to use commonanalytical methods to minimize discrepancies in descriptionof nutrient content of DDGS that occur when differentanalytical procedures are used. The committee alsodecided at that time that the current AAFCO definitionswere adequate to define the distillers co-products beingproduced, and any changes would tend to limit trade ratherthan provide further clarity between buyers and sellers.However, this same committee agreed that the current AFIAIngredient Guidelines be updated for definitions of DDGSand maize condensed solubles. Although these industryinitiatives failed to create an industry-wide quality assuranceprogramme and standards, they did result in greaterawareness among many ethanol plants in the industry,which motivated ethanol plants to implement improvedpractices and quality assurance programmes to producemore consistent and higher quality co-products. In 2009,the Chicago Board of Trade (CBOT) initiated a DDGS futurescontract with specified minimum product standards. Whilethis futures contract has been only lightly traded since itsinception, its launch was indicative of the growing importanceof DDGS in the feed ingredient market, and offeredsome level of price discovery and standardization that somemarket participants thought was missing. Following is commentaryreceived from the CME Group, owner of CBOT,concerning the current status of the DDGS futures contract:“Since 1877, when the Chicago Board of Trade (CBOT) began tradingCorn, Wheat, and Oat futures contracts, price discovery andprice risk management for many agricultural products have occurredon organized futures exchanges. New products for trade have beenadded over time including Soybean futures (1936), Soybean Oiland Meal futures (1950 and 1951), Agricultural Options (1985),and Ethanol futures (2005). DDG futures were launched in 2010 toprovide a platform for open and transparent price discovery and atool for managing price risk for livestock feeders, feed manufactures,importers and exporters, producers, and marketers. While the CBOTDDG futures contract has yet to gain industry traction, it is notuncommon for new futures contracts to take several years to buildregular activity. Lack of a quality standard and a rapidly changingindustry make DDG futures a more difficult futures product comparedwith more standardized commodities like maize or soybeans.It is clear, however, that the growing DDG industry is in need of theprice discovery and price risk management tools offered throughexchange-traded futures contracts. The CBOT continues to workwith the DDG industry to build a futures contract that will allowproducers the ability to hedge their production margins and users tohedge their feed input needs.”(CME Group as pers. comm. to Dr Harold Tilstra, 4 August 2011)Despite, these efforts, the challenge of selecting andmanaging nutrient variability and digestibility among DDGSsources continues. Out of necessity, some independentfeed industry companies have commercially developed andimplemented the use of various methods and services –including near-infrared spectroscopy, energy predictionequations, and in vitro laboratory methods to estimateamino acid digestibility – to help end users of DDGS moreaccurately determine specific nutrient loading values forspecific DDGS sources as well as differentiate feeding valueamong DDGS sources for specific animal species. Use ofsome of these “nutritional tools” and services show that,depending on the DDGS source, nutritional value can be asmuch as US$ 45 per tonne more than the actual price paidfor the ingredient, as demonstrated by one of the presentauthor’s (Dr Gerald Shurson) experiences with the use of