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Distillers' grains replacing soymeal in feed?

Agriculture.com Staff 12/14/2007 @ 7:49am

CHICAGO, Illinois (Agriculture Online)-- The idea that distillers' dried grains (DDGs), the by-product of ethanol, could replace soymeal in U.S. feed isn't reason enough to get bearish on soymeal, analysts say.

John Geuss, marketing manager for Adisseo North America (a maker of nutritional feed additives), told Agriculture Online on the sidelines of the National Feed and Grain Association conference, DDGs could surpass soymeal in tonnage in three years.

Adisseo, with customers who are large poultry integrators and feedmills worldwide, ran feed simulations on broilers, layers, turkeys, and dairy. These models include an allocation by specie of DDGs that will be available in 2010. By balancing protein levels and other factors, the models show that the DDGs will replace roughly equal parts of corn and soymeal.

"As distillers' grains are made more readily available, we see a significant amount of soymeal being replaced in the animal diet," Geuss says.

Guess adds, "Assuming that 15% of the DDGs are exported, the rest of them will go into the feed market for livestock. Of the remaining DDGs, approximately 50% of what’s left will replace corn and 50% soymeal, in feed-rations," Geuss says.

Replacing corn in the feed-ration with DDGs is seen as a small percentage change in corn usage, however, since soymeal usage is smaller, the percentage change is very significant.

"So, in just a few years, we see DDGs larger in tons consumed than soybean meal in U.S. animal diets," Geuss says.

This would indicate a bearish tone for soybean meal, Geuss says.

However, with increased demand, fewer soybean acres in 2007, and increased soybean acre estimates for 2008, industry experts see little impact from the decrease in use of soymeal.

"To the extent the U.S. is expected to raise fewer soybeans and South America more, I don't see an abundance of soymeal not being used," says a CBOT floor soymeal trader. "Plus, it's way too early to get bearish on soymeal. Keep in mind, not all livestock can handle DDGs in their digestive systems."

Stephen Cathcart, ADM Investor Services grain analyst, says the DDGs and soymeal will find a happy marriage.

"Long-term, I think with the uncertainty of ethanol, soybean meal will outlive the corn by-product," Cathcart says. "Don't discount the viability of soymeal as a feed additive just yet."

Geuss says, "I think that a lot of the estimates haven't taken into account what a large amount of soybeans will be replaced by corn distillers' grains. The demand for corn for ethanol is included in most analysts' forecasts, but they have not subtracted the amount of corn and soymeal that will be replaced by DDGS. Maybe there is an export market for the unused soymeal."

Meanwhile, a University of Illinois study, using prices over the 1999-2006 timeframe, shows the cost-effectiveness of using DDGs to replace corn and soybeans can build the livestock producer's bottom line. Based on inserting one ton of DDG to the feed ration, instead of 26.1 bushels of corn and 420 pounds of soybean meal, the average savings from such a substitution was $92.90, according to University of Illinois Extension.

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