Slowdown in ethanol production affects livestock industry

The reduction in ethanol production caused by coronavirus-related issues has ultimately affected the cattle market through a reduction in distillers’ grains as feed, according to Dan Loy, Iowa State University Extension beef specialist and director of the Iowa Beef Center.

History of distillers’ as cattle feed

Loy recalls when cattle feeders first began using ethanol co-products in their rations.

“Corn gluten came first in the 1980s, and it was used for many years or sold to Europe since there was no tariff on it like there was on corn,” Loy explains. “We first started seeding dry distillers’ in the early 1990s, and once they started building ethanol plants, distillers’ became even more popular.” 

Loy further notes it didn’t take long for cattle feeders to discover distillers’ grains were far less expensive than corn, and research out of several universities, including Iowa State, proved distillers’ were a high-quality ingredient in beef rations.

Not long after, hog producers started using distillers’ in their rations as well. 

Slowdown in ethanol industry

“The livestock industry became dependent on distillers’ grains,” Loy states. “The slowdown in the ethanol industry, mostly caused by the COVID-19 pandemic, has producers scrambling. We have to learn how to use corn again.” 

While many states work to lessen the impact of COVID-19, people have started to stay home more, resulting in less travel and less gasoline and ethanol use. 

Plants slowed or ceased production by as much as 50 percent, according to Loy, and therefore, decreased the availability of co-products. 

This slowdown has biofuel producers waiting for inclusion in a COVID-19 relief package, currently under consideration in Congress. 

According to Progressive Farmer, this version of financial relief gives USDA the discretion to make direct payments totaling $20 billion to agriculture, including agricultural processors. 

“The language is broad and would leave it up to USDA to determine who would qualify for aid,” notes Progressive Farmer.

“It isn’t clear how or whether ethanol producers would benefit from the inclusion of the term ‘agricultural processors’ in the Senate bill’s agriculture relief provisions,” said Renewable Fuels Association Chief Executive Officer Geoff Cooper. “Final legislation needs to include specific direction on how the money is spent.”

Cooper continues, “What is clear is that USDA is seeking unambiguous direction from Congress with regard to distributing assistance for ethanol producers.”

Impact on livestock industry

A study published in June by University of Nebraska-Lincoln Agriculture Economist Elliot Dennis and Undergraduate Research Assistant Daniel Gertner illustrated the impact on this slowdown to the livestock industry.

“Decreased ethanol production decreased the availability of distillers’ grains,” they said. “Once again, since prices reflect scarcity, distillers’ grains prices rose. However, these effects were not the same across location and type of distillers’ grains.” 

According to the study, there was a 71 percent decrease in profit margins from November 2019 to May 2020, with a 34 percent decrease in ethanol production.

“With domestic ethanol production reaching its lowest level in over a decade, supplies of distillers’ grains, the most common co-product of corn ethanol, also substantially decreased,” Dennis and Gertner say. “Consequently, many livestock producers have been left without access to an important component of their feed rations. Even in areas where distillers’ grains remained in production, their reduced availability temporarily spiked co-product prices while corn prices fell.” 

As packing plants slowed or stopped production, due to COVID-19 spreading through the workforce, both cattle and hog producers looked to change rations to allow animals to maintain weight, rather than to put on pounds. 

This also impacted distillers’ demand.

“The resulting combination of market forces pulled distillers’ grains prices in opposite directions,” Dennis and Gertner note. “Reduced supply pushed prices upwards, while demand attrition pulled prices back down.” 

As ethanol plants increase production and get closer to pre-pandemic capacity, Loy believes distillers’ and other co-products should become more available and more affordable.

“It comes down to price of distillers’ relative to the price of corn,” Loy states. “We have a lot of old crop corn available. A lot has happened in the last five months, and producers have adjusted and made it work.” 

Hannah Bugas is the managing editor for the Wyoming Livestock Roundup. Send comments on this article to roundup@wylr.net.