DDGs and L-lysine pricing

Last week I wrote about the changes in synthetic amino acid supplies that will be impacting our industry in the coming months. Since then I’ve talked with several producers and suppliers about the impact of the change.

One obvious impact will be on the use of DDGs in swine diets. DDGs retains the amino acid profile of corn. This means it is deficient in lysine and its use in swine diets is highly dependent on the pricing of synthetic lysine. The use of DDGs also is also dependent on the economics of ethanol production as plants price this co-product as a residual income stream, meaning it is priced to move it from inventory, whatever price that takes.

Currently ethanol producers in the upper Midwest are being impacted by the rail car availability issues that are also plaguing the grain markets, especially those in western Iowa, western Minnesota and the Dakotas. At least one ethanol plant in this region that historically sold all of their DDGs by rail car are now making it available to local feed mills. There are reports of ethanol plants being limited on output because of the lack of rail cars to transport the ethanol.

Ag economists at Iowa State University estimate the economics of the ethanol industry on a monthly basis (http://www.extension.iastate.edu/agdm/energy/html/d1-10.html). With crude oil prices now under $90 per gallon the lower price of corn is a necessity for them to operate at a profit as the income stream from ethanol sales will decline. At the same time, sales of DDGs are also important, if for no other reason than plants don’t have long term storage for the volume produced. Generally plants have 7-10 day of on-site storage, at best.

This means they need to keep DDGs flowing from the ethanol plant. However, if l-lysine goes up in price, DDGs will have to decline in price relative to cheap corn in order for producers to price this ingredient into their swine diets. With on-going disruptions in rail car movement of this ethanol co-product, look for spot prices to decline, sometimes quite a bit relative to corn prices. If you’re a producer who anticipated the rise in l-lysine pricing, it appears that you may be in a good position to take advantage of these price declines in DDGs in local markets.

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