Assessing the Economics of Co-Product Storage

Assessing the Economics of Co-Product Storage

August 1, 2008

A new UNL software tool can help ranchers and farmers assess the economics of co-product storage. In the July 23 issue of Cornhusker Economics, Josie Waterbury, Graduate Research Assistant, and Darrell Mark, Extension Livestock Marketing Specialist, discuss the current co-product market and what the software shows.

"In the last few years the decrease in co-product price,particularly that of wet distillers grains plus solubles(WDGS) during the late summer months, has providedincentive for producers to purchase co-products duringthis period. This provided producers the opportunity tostore the co-product and feed it at a later date. Althoughcurrent co-product prices are not mirroring the "typical" ethanol co-product seasonal price trend, storage opportunities still exist for cattlefeeders and cow/calf operations.

From an economicperspective, ethanol co-products continue to be a viablesubstitute for corn, as WDGS and modified wet distillersgrains plus solubles (MWDGS) prices have averaged69.6 percent and 68.1 percent, respectively, of the cornprice on a dry matter basis since the beginning of Junethis year. Because ethanol co-products are currentlycheaper than corn, it may be beneficial for producers toconsider ethanol co-product storage, as the corn marketcontinues to show signs of high market price volatility.

Furthermore, the storage of ethanol co-products allowssmall operations to utilize appropriate quantities of thefeedstuff relative to the size of the operation, and alsoacts as a natural procurement and price hedge for anytype of operation because it becomes an ownedcommodity.

Storage of co-products involves several costs thatvary depending on the storage method used. Managersmust evaluate which of the storage methods best fits theiroperation, while at the same time ensuring that the benefitsof storing the co-product exceed the costs of storage. Co-Product STORE -Storage To Optimize RationExpenses - is a tool designed to quantify the costs ofco-product storage. It allows producers to analyze andevaluate specific storage scenarios in response tochanging market conditions using different storagemethods.

Co-Product STORE is available athttp://beef.unl.edu under the "By-product Feeds" tab.

To read more about this software and its use, view the rest of the Cornhusker Economics column at: http://www.agecon.unl.edu/Cornhuskereconomics/2008/7-23-08.pdf (184 KB)