Why DDGS prices track ethanol

DDGS prices track ethanol because DDGS is a co-product of ethanol, not a crop grown on its own. Nobody plants a field of DDGS. It exists only when an ethanol plant runs corn, so how much of it comes to market, and roughly what it is worth, follows the ethanol business more than the feed business.

Supply is set by the plants, not by feeders

A dry-mill ethanol plant turns each bushel of corn into ethanol, corn oil and distillers grains together. Every bushel run for fuel yields roughly 15 to 17 pounds of distillers grains as a matter of arithmetic, so the amount of DDGS on the market is set by how hard the plants are running, not by how much cattle feeders happen to want that week. When ethanol production is high, DDGS is plentiful. When plants slow or idle, the feed gets scarce whatever the demand from feedlots.

Plant economics in one paragraph

What decides how hard plants run is their margin, and the margin is mostly the price of ethanol and corn oil against the cost of corn. When fuel ethanol and corn oil pay well over the corn bill, plants run flat out and push distillers grains out as a side stream they would rather sell than store. When the margin is thin, run rates ease and DDGS supply tightens with them. So a buyer watching DDGS is really watching a fuel and an oil market as much as a feed one.

The corn floor

Corn anchors the other side. Because DDGS competes with corn in the ration, its price rarely strays far from corn's value as feed, and the two tend to move together. A rough way buyers talk about it is DDGS as a percentage of corn, cheap when that ratio is low and dear when it is high. Between the ethanol run rate on the supply side and corn on the demand side, DDGS sits in the middle of two much bigger markets. Exports are a third pull. The US ships a large share of its DDGS overseas, so foreign buyers compete with domestic feeders for the same supply and can hold a floor under the price in a soft home market.

Worked example

The chart above is the DDGS price history. Long swings in it usually line up with the ethanol margin and the corn market rather than with anything happening in the barn. Read a run-up as plants easing or corn firming, and a slide as plants running hard or corn falling. The DDGS-versus-corn spread page tracks that relationship directly.

The Ration reports the DDGS price and describes what drives it. It does not forecast DDGS prices, corn prices or ethanol production.