By Thomas C. Dorr, USGC President and CEO

The U.S. domestic market demand for distiller’s dried grains with solubles (DDGS) is becoming more and more saturated. This has become increasingly clear to many of the ethanol plant members of the U.S. Grains Council. As the supply for DDGS increases, ethanol plants must discount the price to persuade end-users to increase DDGS use in their cattle, swine or poultry ration.

However, there is a limit. Certain regions and certain animal species can’t increase the use in the ration further without risking loss of animal performance. That is a pretty steep price curve to buy into. Alternatively, the export market is only at about 2 percent to 4 percent of the total world potential. While we have achieved 35 percent in the limited markets our budget allows, there is a lot of room to absorb additional tonnage without demanding such steep price discounts. That is, if the U.S. Grains Council keeps doing what it’s been doing for the last five years.

Ethanol and DDGS production will continue to grow through 2015, driven by the mandate of the Renewable Fuels Standard II. In 2008/2009, the United States exported 22 percent of total U.S. DDGS production, with a value of roughly $900 million. China was the DDGS biggest success story in 2009 as it went from imports of nearly zero metric tons to 400,000 tons in the last half of the year. Although a number of new opportunities, like China, have great potential, it is imperative that we deal with market expectations appropriately in order to capture and retain the markets.

So what happens when we lose one major export market and those tons come back home to compete for space in the feed rations? From 2004-2009 the European Union (EU) went from importing well over 4 million tons of U.S. corn gluten feed (CGF) to roughly 500,000 tons. When that export market was lost, which was the largest market for U.S. CGF at the time, U.S. wet millers did not produce fewer tons. As a result, those additional tons were sold back to the U.S. cattle markets where it displaced corn and DDGS. In fact, U.S. producers had to compete on price and it was not pretty. In the summer months from 2006-2008, producers lost as much as $20.00 per ton more than they would have if the EU market had remained opened. The United States currently exports 5 million tons, on its way to 10 million tons. If we lose one of the top 10 markets because of a foreign government regulation change and no one fights it, it will have a significant cost effect on the industry and U.S. producers?

Since 2004 the U.S. Grains Council has worked to build export markets for DDGS. Our corn grower members approached us and pointed out that strong exports of DDGS would be important to sustaining good DDGS prices here in the United States. The Council set to work to build export markets for this new product. Our staff around the world followed a consistent and highly successful pattern for introducing DDGS around the world. We’ve been at it for 50 years and we have the tools, relationships and insights necessary to be effective market developers.