Dynamic Adjustment of Demand for Distiller's Grain: Implications for Feed and Livestock Markets

This paper evaluates the dynamic adjustment of the demand for distiller's dried grain with solubles (DDGS) to a growth in the mandated volume of ethanol. The estimation results of the dynamic linear logit model suggest the sluggish adjustment of the demand for feed grains. In addition, the estimates of the own-price elasticities indicate that corn demand is inelastic in the short and long run, which suggests that livestock producers can face high feed cost in response to high corn prices. At the same time, the estimated cross-price elasticities reveal the potential value of DDGS as a substitute for corn. Finally, the simulation results show that the ethanol mandate can significantly reduce corn demand but raise DDGS demand, suggesting that the demand for DDGS will continue to increase in proportion to a growth in the blending requirements of ethanol.