Although the ethanol co-product market is an emerging market to some extent, much research has been conducted regarding cattle performance in response to co-product feeding, both from the aspect of feedlot and cow/calf operations. Research has shown that feed conversion, average daily gain, and final body weight all increased for feedlot cattle consuming co-products as compared to cattle consuming a control diet containing no co-product (Buckner et al., 2007). Birth and weaning weights of calves from heifers as well as heifer body condition were found to improve with dried distillers grains plus solubles (DDGS) supplementation as compared to a standard system used by ranchers when wintering pregnant heifers (Stalker, Adams, and Klopfenstein, 2006). Forage intakes have been shown to decrease linearly with increased supplementation of co-products for yearling steers grazing range (Morris et al., 2006). A similar study involving calves grazing corn residue also showed decreased forage intake when supplemented with DDGS (Gustad et al., 2006), which might suggest the potential for economic benefits due to more forage availability or increased stocking rates.

These previously described studies indicate that ethanol co-products, particularly wet distillers grains plus solubles (WDGS), are an excellent feedstuff for feedlot cattle as well as a great supplement for cows or calves on forage. Further, analysis of the costs and benefits of feeding WDGS and other co-products indicate that it is profitenhancing as well. For example, Buckner et al. (2008) showed that the marginal returns to cattle feeding improved by $30 to $50 per head when fed WDGS at 30 to 40 percent of the ration on a dry matter basis. Stalker, Adams, and Klopfenstein (2006) found a $10 per head advantage to wintering pregnant heifers that were fed co-product.

While existing research shows both physiological and economic improvements resulting from co-product feeding, little research has been completed evaluating the economics of storing ethanol co-products. Some evidence based on relatively short time periods does support the observation that co-product prices follow a similar yearly trend to that of the number of cattle on feed, particularly in Nebraska. Figure 1 shows the seasonal price index for DDGS in Nebraska and the 2003-2007 average of the number of cattle on feed in Nebraska (Waterbury and Mark, 2008). As the graph illustrates, DDGS is priced seasonally lowest during the summer months, and although only DDGS is represented in Figure 1, the seasonal price trend can generally be applied to any ethanol coproduct, including WDGS and modified wet distillers grains plus solubles (MWDGS), although data limitations to illustrate these exist. Because co-product supply does not vary dramatically within a given year, the seasonal low price is largely driven by the number of cattle on feed during the associated time period. When cattle on feed inventory is high, feed demand for coproducts is high. As shown in Figure 1, the number of cattle on feed is also seasonally lowest during July, August, and September. As a result, ethanol co-product prices are relatively constant throughout the fall, winter, and spring, and significantly decrease throughout the months of July and August when cattle on feed inventory declines. This decrease in co-product price during the late summer months provides incentive for producers to purchase coproducts during this period when they are usually cheapest. Producers can then store the co-product and feed it at a later date. This is particularly convenient for many cow-calf operations and smaller feedlots that are unable to utilize an entire truck-load of co-product at one time. Furthermore, smaller operations are limited in their ability to efficiently use WDGS because feeding rates are often too low to avoid spoilage (Adams, Klopfenstein, and Erickson, 2006). Storage of ethanol co-products would allow small operations to utilize the feedstuff more efficiently as well as provide incentive for any type of operation to purchase coproducts when prices are seasonally lowest.

Storing co-products is also a natural procurement and price hedge. By physically owning the commodity, cattle feeders and ranchers are somewhat protected against the risk of being able to obtain the co-product (or any feedstuff) at any price level. As corn supplies become increasingly tight and demand for co-products grows, this is a risk to be concerned about. Further, storing purchased co-product is a price hedge in that higher spot prices for co-products will not affect the producer feeding stored co-product.

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