By NANCY VORIS
Indiana Correspondent

INDIANAPOLIS, Ind. — In a year of price spikes for corn and crude oil, and record production of ethanol, a lowly byproduct of the latter is gaining international attention – so much that industry leaders want to recognize distillers dried grains with solubles (DDGS) as a “co-product” with ethanol.

U.S. production of DDGS is nearing 30 million metric tons and is used in livestock feed, fertilizer and fuel in the form of lignin and biodiesel. Global demand for DDGS is rising.

“We need to build it up as a feed source – feed products or co-products, not byproducts,” said Dan Hammes, president and CEO of Quality Technology International, Inc., involved in the production and marketing of value-enhanced grains and grain products to international customers.

He spoke to a gathering of more than 140 foreign and domestic DDGS buyers, producers, nutritionists and marketers at the International Distillers Grain Conference held recently in Indianapolis and sponsored by the U.S. Grains Council and BBI International, a renewable energy industry leader.

With higher corn and wheat prices – and the steadily rising global demand for protein – DDGS exports are expected to hit four million metric tons in 2008-09, with sales exceeding $800 million.
Establishing a network for DDGS markets is especially important at a time when narrowing ethanol production margins have heightened the value proposition of sustaining distillers grains market growth, domestically and abroad.

Putting the U.S. ethanol industry in perspective, Bruce Rastetter of Hawkeye Renewables cited the contribution ethanol makes to the economy.

“The U.S. exports $0.5 trillion to pay for oil and the U.S. consumed close to 20.8 million barrels of oil per day this year, 13.9 million of which are imported,” he said.

U.S. ethanol was the third-largest provider for U.S. fuel, preceded only by Canada and Saudi Arabia. “That’s a $47 billion contribution to the U.S. economy,” he said.

Scott Richman of Informa Economics zeroed in on the ethanol industry situation and its impact on the DDGS market. “If 2007 was an interesting year for ethanol, 2008 was a really interesting year for ethanol,” he said.

Production continues to rise, with 175 plants producing 10.6 billion gallons of ethanol a year and 28 new plants under construction. June floods rallied corn futures to a record $8 per bushel, while crude oil futures set a new record in July. Corn prices eased when growing conditions returned to normal and oil prices eased under the weight of high gasoline prices.

Prices for both dropped sharply this fall due to the financial crisis and concerns over a worldwide recession.

Ethanol usage in the form of blending has stayed fairly consistent with supply, but the problem is that gasoline usage has declined this year. Also, lower ethanol prices relative to gasoline have been necessary to encourage more use.

“Gasoline prices are dropping like a rock,” Richman said. “Fortunately for the ethanol industry, the corn price also dropped like a rock.”

While ethanol is experiencing a surge, the vast majority of distillers grains so far are used domestically. The U.S. market size is determined by the feed ratios that livestock and poultry operations are willing to use, and the nutritional value of DDGS is still being studied. A swine feeding trial is being conducted in Canada to determine the maximum DDGS that should be allowed in swine nutrition.

DDGS exports have risen to record levels. Shipments to the European Union have dropped because of biotech issues, while Canada and Mexico shipments continue to climb. Mexico is the number one importer of U.S. DDGS and works with U.S. livestock nutritionists in

developing their ratios, said Steve Markham of CHS, Inc., a marketer of DDG.

“Distillers grain is the best value per unit of energy and per unit of protein,” he said. “It’s not necessarily cheap, but it’s the best value.”