Canada a growing market for U. S. distillers grains

Since the boom in the U. S. biofuel industry, U. S. supplies of dried distiller grains, ethanol’s co-product, have grown significantly and U. S. exporters have been looking North to a large and growing market for their feed alternative.

At the recent United States Grain Council’s, or USGC, International Distillers Grains Conference & Trade Show in Indianapolis, Scott Richman, vice-president of Informa Economics, said 31.3 million tons of dried distillers grain with solubles, or DDGS, will likely be available in the U. S. for the 2008-09 marketing year, which began October 1.

“There will be a substantial amount of DDGS available for global livestock industries,” Richman was quoted as saying. “It looks like we are going to be pushing more DDGS into export markets.”

A portion of that supply will make its way into Canada, which in calendar year 2007 was already the second-largest importer of U. S. DDGS.

The level of Canadian imports has grown significantly in the last few years, according to Neil Campbell of Gowans Feed Consulting. Campbell is the Western Canadian consultant for the USGC.

Campbell said Canadian imports of DDGS will be in excess of 600,000 tons by the end of 2008. That compares to 317,000 tons in 2007 and 100,000 tons in 2006.

The costs savings to be gained from feeding distillers grains have been the key driving factor behind the increase in Canadian demand, Campbell said.

“In the last year, the average cost savings of feeding distillers grains to hogs has been at least C$3 a pig,” he said. “That adds up to a considerable amount of money for a large operation.”

This past year, DDGS importers were also helped by the Canadian dollar, which until this fall, enjoyed a sustained period of strength relative to its U. S. counterpart.

High grain prices also encouraged farmers to turn to alternative feed sources.

Now, however, the feed and currency situation have changed and the big question is whether or not the import pace in Canada will hold steady.

The drop in the Canadian dollar and the increased availability this year of cheap feed barley and feed wheat in Western Canada will make it less attractive for some users, particularly feedlots in Alberta.

Manitoba, however, may use the same amount and possibly even more distillers grains, because of the growing acceptance among the hog industry, he added.

“The U. S. merchandiser can get rail cars filled with distillers grains into say, Lethbridge or Ponoka (Alberta) but they usually don’t have the local connections to get it from the rail out to the farm and that is where the traders and brokers have really created their niche,” Campbell said.

Western Canada, especially Alberta, was designed to ship out feed ingredients rather than bringing them in, Campbell explained.

“We’ve had a low dependence historically on importing feed ingredients, which accounts for some of the logistical constraints we’ve encountered,” he said.

Direct sales are more common in Manitoba because sellers can truck distillers grains directly to the buyer at a reasonable cost, Campbell said.

Of course, the rising amount of DDGS crossing the border into Canada has made it more difficult for traditional feed sources, such as barley and wheat, to compete.

The problem is compounded by the fact that there are also less mouths to feed in Canada due to the shrinkage seen in livestock herds over the past year.

There are now more feed sources competing for a bigger piece of a smaller pie, said a grain buyer from Alberta, who did not wish to be named.

Toby Torkelson, vice-president of Rayglen Commodities Inc., a Saskatchewan-based grain brokerage, said, “We are definitely seeing a heavier influx of DDGS, which is taking away a lot of the traditional markets for feed wheat, feed barley and feed peas.”

A weaker Canadian dollar would be positive for feed grains by providing less of an incentive to bring up distillers grain, Torkelson said.

For the remainder of 2008 and further out, “the exchange rate will play a big role but the big question mark will be whether or not distillers grains are going to come down in price enough that they will still be competitive in Western Canada,” said Campbell.

As long as the product is priced competitively relative to Canadian feed ingredients, demand will continue to grow, Campbell predicts.

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