As increased ethanol production grows the supply of dried distillers grains (DDG), the need to manage the prices of these feed co-products is also rising.
"Spot market purchase volumes may be limited due to storage considerations (particularly for wetter products), but buyers could talk with their suppliers about locking in prices for the future for routine deliveries," says Darrell Mark, University of Nebraska-Lincoln (UNL) ag economist, in the most recent "In the Cattle Markets" newsletter published by UNL and Kansas State University. "Additionally, new research is exploring ways to store distiller's grains that may make stockpiling supplies more feasible.
"The seasonal trend is for DDG prices to peak in mid-April and decline throughout the summer. Seasonal lows typically occur in August at about 80% of the annual average. DDG prices then increase through the fall and early winter months to peak in December and January close to 20% higher than their annual average."
According to Mark, this is based on seasonal price index of DDG using USDA Ag Marketing Service weekly reported prices for Nebraska from 2003-2005. He stresses that long series of price data on wet and dry distiller's grains to analyze are limited, and prices that are available may be thinly traded or not necessarily representative of actual trades made between ethanol plants and cattle feeders or feed buyers. Still, he says it's useful to consider trends in these feed products.
Further, Mark explains, "As ethanol production continues to rapidly increase, the availability of DDG and wet distillers grains will increase. Thus, co-product feed prices may not see as large a seasonal increase in the third and fourth quarter of upcoming years as suggested in the table. In fact, the DDG price increase was much smaller for 2004 and 2005 than for 2003.
So, in this ever-changing co-product market, prices may not increase in late 2006 as much as the historical trend suggests. But, this will likely differ greatly across localized markets depending upon the relative supply and demand for the distillers grain products."
For some added perspective on ethanol growth, a recent visit to North Dakota revealed to us: currently there are two ethanol plants in the state producing approximately 35 million gals. of ethanol; within 18 months current construction calls for a total of six or seven plants producing 10 times that much!
You can find Mark's complete report at www.lmic.info/memberspublic/InTheCattleMarket/CattleMktsframe.html