Farmscape Article 2241  September 9, 2006

A massive expansion of North America’s ability to produce biofuel, including biodiesel and ethanol, is expected to dramatically increase the demand for crops which have traditionally been used in the manufacture of human food and livestock feed.

As the shift to increased biofuel use becomes increasingly evident in both Canada and the United States, western Canadian livestock producers will be looking for help to keep a lid on feed costs. That help could come in the form of a combination of higher cereal grain and oilseed yields through plant breeding, regulatory changes designed to ease the registration of new wheat varieties suited to specific end use requirements and low cost byproducts from biofuel production.

Upcoming Conference to Focus on Feed Security

“Ensuring Feed Security for the Canadian Prairies” will be the focus of the opening session of the 27th Western Nutrition Conference slated for later this month (September 19-20) in Winnipeg.

U.S. Energy Bill Encourages Expanded Biofuel Production

“There are some strong government incentives here in the U.S.,” explains Douglas Tiffany, a research fellow in the Department of Applied Economics at the University of Minnesota. “There are some other different types of incentives in Canada.”

He recalls, “In the summer of 2005 the U.S. congress passed, and the president signed, the 2005 energy bill. And that established some targets, essentially mandates, for utilization of biodiesel and ethanol in a pattern up to 2012.”

As well, he points out, “There’s maintenance of a 51 cent per gallon credit for blenders who utilize ethanol. That is still intact and there is a similar credit of one dollar per gallon of biodiesel that is utilized. So those things working together have really opened the flood gates of investment into biofuels in the U.S.”

He notes, “Announcements are being made of investor groups and people are applying for permits in the different states. There is some concern that the plants may be too close to one another. They will be strongly bidding for the feedstock, the corn typically, and that is causing shudders among the livestock producers. They say, wow, how can we compete against all these folks who are after the corn that we thought that we were able to buy cheaply.”

He believes, “It’s going to really put the pressure on certain livestock entities.”

Biofuel Expansion Expected to Alter Feedgrain Usage

 “It’s going to have an impact in terms of the usage and the flow of feed grains,” says Owen McAuley, a grain and cattle producer who farms just north of the TransCanada highway at the Manitoba-Saskatchewan border.

He suggests, “Probably the biggest challenge is the magnet from the U.S. They’re producing a lot of distillers dried grain down there which is becoming relatively cheap and providing a fairly cheap stable feed source for feeding which, even today, is drawing some cattle out of western Canada down there to be fed. That is a challenge for us, not in terms of feed security, but in terms of maintaining the feed requirement here.”

Dr. Dave Hickling, the vice president of canola utilization with the Canola Council of Canada agrees, “The [biofuel] industry is on the verge of quite massive growth.”

However, he adds, “It is dependent on what the federal government comes up with this fall with their policy positions on renewable fuels. But we are expecting a renewable fuel mandate for both ethanol and biodiesel. If the numbers go ahead, as we expect they would, certainly it would mean quite a substantial increase in both biodiesel and ethanol production.”

He estimates, “Probably about another two to three million tonnes of oilseed, probably canola production, and another eight to ten million tonnes of grain production used for biofuels.”

McAuley speculates, “As the ethanol industry grows and we start to use more and more wheat acres it’ll have an impact in terms of the wheat that’s available for the Canadian Wheat Board. It’ll also probably draw some acres out of the traditional feedgrains like the oats and the barley and some of those acres so that’s another concern.”

Overall Impact on Livestock Feeding Costs Under Debate

Dr. Hickling concedes, “With more grain, especially corn and wheat going into ethanol production, you would expect to see an increase in the price of those grains for animal feed. I think the debate is what the extent of that increase will be.”

“I initially thought we might see quite a large increase in feed grain prices but I'm now coming more to the conclusion that we'll see an increase but it'll be a moderate increase.”

He is confident a couple of key factors will bring some balance to the situation.

“I've seen quite a few reports that basically have indicated, because the increased demand is going to be incremental, somewhat gradual, that there are capacities for improved yields on grain as well. [With] corn yields in the states and higher yielding wheats in Canada we will be able to meet that increased demand through increased supply so that the net effect on price will not be that large.”

He notes, “The canola industry specifically has been moving towards the use of hybrid technology. These hybrid varieties have 30 percent higher yield than our traditional open pollinated varieties and that will accommodate most of the increase in production that we’re expecting. We do expect to see canola grown in some non traditional areas, especially the southern parts of the prairies.”

Higher Yields Expected to Help Offset Higher Demand

Dr. Hickling adds, “I think our own projections are quite comforting. We actually predict, over the next nine or ten years, an increase in edible canola oil consumption in addition to the two to three million tonnes of biodiesel production. The bottom line is we expect to increase our production to compensate for both the increased edible and biodiesel demand.”

In Western Canada a major concern has been the inability of plant breeders to register new wheat varieties specifically suited for feed or industrial use.

Canadian Wheat Registration Criteria Creates Obstacles

Dr. Anita Brûlé-Babel, a wheat breeder with the University of Manitoba, explains, “The classes of wheat that we can develop in western Canada, at least up until this point, have been required to meet specific milling food end use quality characteristics with specific protein functionalities. As a result we have not had what we call a registerable feed or industrial purpose wheat class. What’s being marketed in western Canada as feed wheat is actually grain that has not met the grade for milling standards and that can be as a result of a number of factors such as frost, fusarium damage, dockage and a whole series of other things.”

She points out, “That grain is what is classed feed grade but it’s not necessarily the quality that the feed industry wants for feeding animals and for consistency of formulations of feed, especially as the producers of feed require larger amounts of consistent supply of a particular formulation of feed. We’re in a position where the feed industry and the ethanol industry will demand good quality grain but not necessarily the same quality that’s required for a food product. In their case they would want, probably, a lower protein but a higher energy content and the characteristics of that energy might be quite different.”

McAuley agrees, “The big challenge for us is that we have to be growing a feedstock that’s suitable for the industry requirement. If it is pig feed that means that we need no fusarium in our wheats. In the ethanol industry we need starch, so it’s about breeding a feedstock for the industry and that will help promote more value added industry. It’ll help promote more rural diversification in terms of other uses for that product.”

Increased Wheat Yields Considered Critical

He suggests. “It’s hard to imagine that grain farmers in western Canada are going to get rich by trying to grow hard red spring wheat which produces 32 or 35 bushels to the acre and then, because it’s weathered, that we’re going to sell it to an ethanol plant and think we’re going to make money because they want to buy their feedstock cheap too. We need to produce something that produces consistently 45 to 50 or maybe 60 bushels to the acre and then we can afford to sell it to them and still make a dollar.”

Lower Protein Costs Offer Relief

Meanwhile, as Dr. Hickling points out, “On the other side, the increased ethanol and biodiesel production will mean a dramatic increase in the production of those byproducts, distillers’ grains and canola meal. Even if we follow the mandates that we’re expecting the government to implement, that could mean an extra four million tonnes of distillers’ grains and canola meal production per year and that would have a quite a significant impact on supply and demand for those ingredients. It would certainly cause a drop in the price of distillers’ grains and canola meal.”

Effect on Costs for Feeding Different Species Expected to Vary

Overall, Dr. Hickling estimates, “The cost of energy in the feed will be more expensive and the cost of protein will be cheaper.”

He suggests, “For animals like dairy cattle and beef cattle that’s not going to be as huge an issue but for animals like poultry and, to a certain extent, hogs which have a high requirement for energy in their diets it will result in a somewhat different outcome.”

He concludes, “For cattle feeds we will probably see an overall decrease in feed prices. For hog and poultry feeds we may see a modest increase in prices.”

The 27th Western Nutrition Conference is slated for September 19-20 at the Fort Garry Hotel in Winnipeg. The first half day of the conference is sponsored by Manitoba Pork Council and the Manitoba Rural Adaptation Council (MRAC) and is targeted specifically at farmers. Farmers interested in attending the session on the morning of September 19 may do so at no charge, but must pre-register by contacting Manitoba Pork Council at (204) 237-7447.

Staff Farmscape.Ca