Fueling Livestock

Profitability

Alan WeberEconomist and Founding

Partner MACC-IV1

Impacts on animal agriculture

Animal Fat Markets

• Declining export markets

• Approximately 25% of U.S. animal fats utilized for biodiesel production

• AFs are significant feedstock source for biodiesel producers

Biodiesel45%

Other Uses (feed, oleochem-ical)55%

CWG Demand, Biodiesel (2014)

Biodiesel Demand for Animal Fats Generates an Additional Revenue Stream for the Livestock Industry

Meat Market Price Dynamics

Demand for beef increases and prices increase.

Higher beef prices stimulate production.

Beef supply increases and prices moderate.

Price increases

stimulate

increases in

supply.

Tallow Market Price Dynamics

Higher tallow demand leads to higher prices.

Higher tallow prices do little to stimulate higher

beef production.

Tallow supply is basically fixed, and prices remain at

elevated levels.

Tallow

Tallow prices increase and remain at higher levels

because increases in demand do not stimulate

corresponding increases in supply (inelastic supply).

Estimated Biodiesel Impact on Inedible Tallow Prices

10

15

20

25

30

35

40

45

50

55

60

Cent

s/lb

Month

Observed Inedible Tallow Price vs. Predicted Price (January 2009 - May 2014)

Observed Inedible Tallow Price Predicted Inedible Tallow Price (No Biodiesel Impact)

Average Inedible Tallow Price Increase: 10.584 ¢/lb Adjusted R2 = 0.869

Standard Error = 3.313

Source: Centrec

Animal Fats and Yellow Grease Prices Discount Relative to Soybean Oil

Source: Informa

Increased Use of Animal Fats for Biodiesel Has Improved Returns for the Livestock

IndustryBeef Tallow

Poultry Fat

Pork Lard and Choice White Grease

• $0.01 increase in value per head• $51.20 MM estimated aggregate contribution to

industry from biodiesel demand in 2013

• $1.24 increase in value per head• $165.59 MM estimated aggregate contribution to

industry from biodiesel demand in 2013

• $16.08 increase in value per head• $567.59 MM estimated aggregate contribution to

industry from biodiesel demand in 2013

Biodiesel Production Lowers Soybean Meal Costs for the Livestock and

Poultry Industry

Co-Product Demand Linkage

This leads to more crush to meet the oil demand, thus increasing the demand for soybeans which in turn leads to higher soybean prices.

The increased crush also produces a greater supply of soybean meal, causing the price of meal to decline.

Biodiesel creates more demand from vegetable oils. The price of soybean oil increases since there is more demand at a given level of supply.

More Biodiesel Demand

Higher Soybean

Production

Lower Meal Prices

The following 6 studies have all analyzed the relationship between greater soybean oil demand from biodiesel and soybean meal prices.

Impact Range on SBM for Domestic Livestock Feed Price

Source: Informa

Estimated Impact of Biodiesel Production on the Pork Industry’s Meal Costs

Wean-to-Finish Hog Production Meal Savings

Breeding Sow Meal Savings (Annual)

Meal in Complete Ration (T/hd) 0.07Soybean Meal Cost ($/hd) $25/T Meal Price Savings $1.69

Meal in Complete Ration (T/hd) 0.10Soybean Meal Cost ($/hd) $25/T Meal Price Savings $2.50

Estimated Impact of Biodiesel Production on the Dairy and Beef Industry’s Meal Costs

Feeder-to-Finish Steer Production Meal Savings

Dairy Cow Meal Savings (Annual)

Meal in Complete Ration (T/hd) 0.16Soybean Meal Cost ($/hd) $25/T Meal Price Savings $3.90

Meal in Complete Ration (T/hd) 0.22Soybean Meal Cost ($/hd) $25/T Meal Price Savings $5.41

New Uses: Crude Glycerin

Fuel Sources: burns well at high temperatures

Animal Feeds: can be applied directly to feed or used to manufacture pelletized feed

Crud

e G

lyce

rin

Pharmaceuticals: cough syrups, elixirs, and gel caps

Oral Care Products: gives products such as toothpastes and chewing gums a sweet taste without contributing to tooth decay

Personal Care Products: helps prevent moisture loss, ideal ingredient in makeups, skin lotions, shampoos, and deodorants

Industrial Uses: used in the production of plastics, foams, explosives, resins, and coatings

Food and Tobacco Products: used to add moisture and sweetness to these products. It also has preservative qualities.

USP

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Beneficial Impacts (example)

Alan Weber Senior Advisor

National Biodiesel Board