Ethanol By-Product Market Projections
Given the rapid expansion of ethanol production, both nationally and within Michigan, there is growing interest in forecasts of ethanol by-product prices. The future of ethanol by-product markets is currently characterized by high levels of uncertainty. This uncertainty arises from an array of factors including:
In light of this uncertainty it is difficult and generally not advisable to project by-product prices for time horizons of any substantial length. However, some valuable insights may be gained by evaluating the historical relationship between corn and dried distillers grains prices. Over the last ten years, dried distillers grains (DDGS) have trended towards being cheaper, relative to corn on a $/ton basis. In particular (see graph), the ratio of DDGS to corn ($/ton) has declined by approximately $0.024/ton per year. Increases in corn price also tend to reduce this price ratio. More specifically, each $1/bushel increase in corn price appears to reduce the price ratio of DDGS/Corn by approximately $0.10/ton. It is further important to note extreme variability in this price relationship over the last ten years. This variability likely persists due to seasonality factors, exponentially increasing ethanol production during the sample period, and other issues.
As the ethanol by-product market continues to mature and expansion in ethanol processing begins to stabilize, responsible projections of by-product prices will be increasingly possible. Corresponding decisions regarding economic value in livestock feed rations will also be made with more certainty given heightened confidence in price expectations. Until this market maturation process occurs livestock producers interested in ethanol by-products as possible inputs in feed rations would be well served to use current by-product and alternative feed prices (see price discussion) to make intelligent decisions.
Glynn Tonsor, Agricultural Economist Michigan State University Last updated: December 20, 2006