June 10 (Bloomberg) -- Green Plains Inc., which just became the first major ethanol producer to buy its own cattle-feed yard, has plans to milk it for more -- by buying the cattle too.
The fourth-largest ethanol maker in the U.S. bought the assets of Supreme Cattle Feeders from Agri Beef Co., including a feed yard and a grain storage facility near Kismet, Kansas, for $15 million. The move marks a shift for the Omaha, Nebraska-based company from selling distillers grain, a byproduct of ethanol production known as DDGS, to directly feeding it to cattle that the company plans to eventually buy, Todd Becker, Green Plains’ chief executive officer, said in a telephone interview today.
“As some of the customers transition out, we’ll definitely transition into feeding our own cattle in the future,” he said. “It just happens to be that, instead of an ethanol plant grinding the corn, now the cow will be our corn-processing unit.”
Jim Damask, an ethanol broker at Jupiter, Florida-based Starfuels Inc., described the move as a novel idea that may allow Green Plains to better dispose of byproducts that have become a burden to sell.
“I’ve never heard of anyone else doing this -- it’s pretty neat,” Damask said. “The first thing that comes to mind is that they’re going to be able to get rid of their DDGS, which is a pain in the butt to sell since the people paying for them tend to be smaller-type counterparties.”
DDGS can cut feed by as much as 30 percent, “so this might actually enable them to become even bigger players in the grain market too,” Damask said.
Supreme Cattle’s operations include about 2,600 acres with about one-third of that used for a feedlot that has the capacity to support 70,000 head of cattle. The company’s corn storage capacity, including the Cimarron Grain complex, totals 3.8 million bushels.
“The ethanol business is our main business, and cattle feeding won’t replace that,” Becker said. “But it’s definitely a good opportunity.”
Ethanol prices have fallen 13 percent over the past year. Futures for July delivery dropped 1.3 cents, or 0.6 percent, to settle at $2.145 a gallon today on the Chicago Board of Trade. Cattle futures for August delivery gained 0.1 percent to $1.434 a pound. Prices are up 20 percent from a year ago.
Ethanol suppliers have faced transportation delays after a winter that sent temperatures to record lows in some states and as they compete with oil producers in shale plays such as North Dakota’s Bakken formation for space in railcars.
In the long term, Becker said he doesn’t see rail demand being “quite as robust” because of companies shortening the time it takes to unload cars and the volatility of Bakken oil spreads weakening its draw to markets along the coasts.
“The volatility in the Bakken spreads has caused people not to renew leases, freeing up some for biofuels,” he said. ‘Everybody in the ethanol industry has the railcars we need.’’
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