Do Distillers Grains Work In Cattle Rations At Today’s Prices?

Darrell Mark
SDSU Economics Adjunct Professor

Like corn, prices for distillers grains have been increasing since the beginning of the year. Dried distillers grains plus solubles (DDGS) prices have increased nearly $40/ton so far this year, with recent prices averaging in the mid-$230s per ton in South Dakota. The price for wet distillers grains plus solubles (WDGS), which is about $72.50/ton in South Dakota, is about $11/ton higher than at the beginning of January. Modified distillers grains plus solubles (MDGS) prices have only gained about $3.50/ton since the beginning of the year, putting current prices near $98.50/ton. After adjusting for the different as-is moisture levels, DDGS and WDGS prices have increased about $44/ton and $31/ton on a dry matter (DM) basis since January 1.

While the absolute price levels, whether measured on an as-is or DM basis, have increased in the last three months, the relative price of distillers grain to corn determines whether it is included in cattle feedlot rations. Interestingly, the distillers grain price relative to corn has increased sharply since the beginning of the year as well, from levels that were already high on January 1 by historical standards. Currently, DDGS is trading at 142% of the corn price (DM basis) in South Dakota. That’s actually down from 154% a month ago, but higher than the 129% price ratio at the beginning of the year. The price of WDGS relative to corn (DM basis) is currently 114%, up from about 106% at the beginning of the year. The MDGS price relative to corn has eased from 114% on January 1 to 108% in early April.

From a supply standpoint, it may be somewhat surprising to see distillers grain prices increasing. Ethanol processing margins have been quite good in the first quarter of 2014, leading to increased ethanol (and therefore distillers grain) production. However, demand remains strong for distillers grains. Export demand has pushed DDGS prices well beyond its wetter coproduct counterparts (WDGS and MDGS generally are not exported due to higher water content). Domestically, livestock numbers have increased modestly, supporting demand for distillers grains even though ration inclusion levels are generally lower than they have been during several of the previous high-corn price years. Surging soybean meal prices have also been supportive to distillers grain prices.

As discussed in a December 29, 2013 Cattle & Corn Comments article, distillers grains can still be used profitably in cattle feedlot rations at prices that are high relative to corn because rations with WDGS, and to a lesser extent DDGS, tend to improve feed conversion and average daily gain. As discussed in that article, at that end of 2013 a ration for finishing a 750 lb steer containing WDGS and DDGS could improve feeding margins by $33/head and $12/head, respectively, compared to a corn-only ration. That was when the WDGS price was 113% of corn price (DM basis) and the DDGS was 138% of corn price (DM basis) and the distillers grain inclusion level was 20% of the ration DM.

Now, let’s consider even higher price ratios (115% for WDGS and 146% for DDGS) and a higher ration inclusion level (30%). The corn price in the ration is $4.35/bu, while the WDGS and DDGS prices are $72.50/ton and $232.65/ton (as-fed basis). Using a ration without distillers grains (e.g., “corn-only”), the feeding cost of gain is about $87/cwt assuming feed conversion is 6.8 lb of feed per lb of gain (DM basis) and average daily gain is 3.68 lb per day. A ration comprised of 30% WDGS (on a DM basis) would have a feeding cost of gain of about $82/cwt, even at the 115% price ratio, assuming average daily gain improves to 4.31 lb per day and feed conversion improves to 6.02 lb feed per lb of gain (which is based on averages projected from numerous university feeding trials). This reduction in feeding cost of gain improves the feeding margin by almost $28/head for finishing a 750 lb steer to 1,350 lb. However, at the 146% relative price ratio for DDGS, the feeding cost of gain increases to $90/cwt, assuming feed conversion is 6.38 lb of feed per lb of gain and average daily gain is 4.05 lb per day (better than the corn-only scenario, but not as good as the WDGS ration scenario, which again is based on university feeding trials). So, feeding the DDGS in the finishing ration at 30% inclusion (DM basis) leads to about a $20/head poorer margin than the corn-only ration and about a $48/head poorer margin than the WDGS ration.

So, it is still possible to include distillers grains in feedlot cattle rations. However, to do so profitably, inclusion levels generally have to be decreased and the wetter coproducts (WDGS and MDGS) have to be used instead of DDGS. Even then, cattle performance has to be better in the coproduct-based rations compared to corn-only rations.

Source : SDSU