Modeling the U.S. Domestic Livestock Feed Sector in a Period of Rapidly Expanding By-Product Feed Supplies from Ethanol Production

Rapidly expanding ethanol production in the U.S. was given further impetus with the passage of the Energy Policy Act of 2005 mandating a minimum production of 7.5 billion gallons of renewable fuels by 2012. The availability of the by-product feeds of ethanol production (corn gluten feed and meal and DDG) has not only become a significant share of the protein feed sector, but also the increase has been and will be extensive. The challenge is how to incorporate these feeds into econometric models of U.S. agriculture and measure their impact on the utilization of other feeds, particularly coarse grain and soybean meal. Another task is to forecast prices on the by-product feeds. This paper suggests a couple of procedures embracing the entire sector of livestock concentrates, including both protein and energy feeds. The feeds were converted into protein equivalents and energy equivalents and introduced into regression equations predicting (1) the amounts of soybean meal and coarse grain fed and (2) the amount of protein feeds utilized in protein equivalents and the amount of all concentrate feeds utilized in energy equivalents. In case (2), the amounts of soybean meal and coarse grain fed were derived by deducting the protein and energy equivalents of the other feeds from the totals predicted. This case was the one selected to be incorporated into AGMOD, an econometric model of U.S. agriculture. To forecast prices on the by-product feeds of ethanol production, synthetic prices for protein and energy were derived from prices on soybean meal and corn. Applying these prices to the ethanol byproduct feeds, values for these feeds were generated. These values were the major explanatory variables associated with the by-product prices supplemented by variables representing the ratios of the utilization of the respective feeds in protein equivalents to the total utilization of protein feeds in protein equivalents. Prices on corn gluten feed and DDG have been declining relative to their values, with continued downward pressure in prospect for prices on DDG in the next 10 years.