Oil industry demands will benefit grain-and-feed industry

February 18, 2014

Grain-based distilleries may be making a comeback in 2014, thanks to the increased use of ethanol by oil companies who are blending it with petrol.

Long employed as a cheaper alternative to manufacturing grain-based alcohol, molasses-based distilling processes are becoming more expensive – a byproduct of the renewed demand for the sticky substance, which has increasingly been added to the petrol production mix, thus boosting its price tag as a commodity, according to a recent Economic Times report.

Alcohol from grains, meanwhile, has long been considered higher-quality, but that priority was often bypassed for the sake of the bottom line by many companies opting to use molasses in its place. This cost-cutting method has been especially evident abroad, in countries like India, where only about 25 percent of distilleries in the country were grain-based at the start of 2014. But as molasses prices rise, more manufacturers are expected to revert back to the old-fashioned and suddenly more cost-effective way of doing things, complete with magnetic separation equipment that helps remove contaminants and ultimately leads to higher-quality products for the liquor industry.

The ripple effects
The oil industry's sudden emphasis on a commodity as seemingly mundane as molasses provides an example of how one operational shift can create a domino effect felt across many industries. Prices for molasses-based ethanol have risen by more than 10 percent globally over the past year alone, and as more petrol producers determine that its use lends itself to the most efficient production methods, those prices could climb even further. For grain-and-feed operations, the reverberations of that trend will be felt in a positive sense.

What occurred in the Indian economy over the past few years serves as a potential harbinger of what North American and European countries can expect. Additionally, the process of manufacturing alcohol with grain, as opposed to molasses, has benefits that permeate other operations.

"The byproduct and waste of the grain-based distilleries is rich in proteins," said Atul Malay, Executive Vice President of Praj Industries in Maharashtra, India. "Use of dryers helps to increase its shelf life for use as cattle and poultry feed. Distilleries are increasingly becoming a source of protein-rich feed for livestock."

Indeed, the use of dried distiller grains with solubles – or DDGS – has already caught on in the U.S., where fuel ethanol is often derived from maize. By cross-subsidizing the production of alcohol, the utilization of such commodities is expanding, and that should prove to be positive development for the grain-and-feed industry going forward.