USDA released its first-ever report about ethanol co-product use in the livestock sector. Last winter, the USDA interviewed more than 9,000 dairy, cow-calf, feedlot and hog producers across 12 north central states ranging from Ohio to the Dakotas to establish baseline data about this increasingly important part of both the ethanol business and livestock production. Nearly 40% of the dairy and feedlot operators surveyed reported using ethanol co-products during 2006, while just over 10% of cow-calf and hog producers reported using these products. Over half of the cow-calf and hog producers reported that they were unlikely to ever use co-products, while only 40% and 30% of dairy and feedlot operators, respectively, reported not considering using co-products.
Who is using co-products? The short answer is that these operations were relatively large and, with the exception of hog producers, had been using co-products for quite a while already. For example, feedlots that reported using co-products were 3 times larger than those who did not, and those feedlots had been using co-products for more than 5 years – well before the current ethanol boom. Cow-calf and dairy farmers also had considerable experience using co-products (4.7 and 9.2 years, respectively) and were roughly twice as large as those not using co-products. Hog producers using co-products were the most recent adopters – the average producer had been using co-products less than 3 years. But only the biggest hog producers had adopted – adopters were 5 times larger than non-adopters.
Where are livestock operators getting the co-products? It depends on the type of operation. The majority of feedlots (52%) are getting co-products directly from the plant, while the other types of livestock enterprises chiefly work through feed companies or other middle men to obtain co-products.
What are the terms of trade for buying the co-products? More than half of operators in all four categories work through the spot market to get co-products, though there are some operators that work off of monthly or annual contracts as well. For a majority of feedlot and cow-calf operations, the price of co-products is based on the prevailing corn price. For hog and dairy operations, however, co-product pricing is just as likely to be based on both corn and soybean meal prices. The smallest percent of producers price co-products from the price of beanmeal alone.
The form of co-products can range from wet to coarse meal to fine meal to pellets – the popularity of each form differs by livestock sector. Feedlots currently using co-products relied upon wet forms the most – 64% used some wet distillers co-products during 2006, while fewer than 20% of other livestock operators using co-products tried wet forms. The most popular form among dairy and hogs producers was dry, fine meal – at least half of those using co-products used this form. Cow-calf operators relied slightly more on pelleted and cubed forms of co-products, though at least 20% of producers who used co-products had used at least some wet and some dry forms of co-product.
So, what is keeping operators from trying ethanol co-products? The biggest reason stated by those who have yet to try them is availability – about one-fourth to two-fifths of producers in each livestock group cited this reason. The next biggest reason for all the cattle-based producers was a lack of infrastructure and storage/handling facilities to deal with this type of feed. The second most important reason for hog producers was a concern about the nutritional value of ethanol co-products for their operation. Only about 5% of all producers claimed that a lack of knowledge was holding them back from trying co-products (though who wants to admit being unknowledgeable on a survey).
USDA should be commended for taking a first step in documenting the current status of co-product use among US livestock producers. One hopes they will expand the reach of the next survey into other key livestock states and furthermore ask producers who have recently incorporated co-products into their rations about difficulties they suffered during the transition so that non-adopters interested in trying this increasingly available feedstuff can learn from the experience of others.
To help guide in issues surrounding the price of co-products, I have updated a spreadsheet on my web page (http://aede.osu.edu/people/roe.30/livehome.htm ). The spreadsheet includes weekly Eastern Corn Belt feed price series, including several ethanol co-product prices, from the past several years.