CURRENT ISSUES <ul><li>Food commodity prices have been extremely volatile in recent years.  </li></ul><ul><li>Sharp increa...
KEY FACTORS THAT IMPACT ON COMMODITIES: SHIFTING GLOBAL ECONOMIC FORTUNES <ul><li>Rise of new economic powers and focus on...
KEY FACTORS THAT IMPACT ON COMMODITIES: CLIMATE CHANGE <ul><ul><li>Weather extremes becoming more prevalent  </li></ul></u...
<ul><ul><li>High crude oil prices - increasing demand for bio-fuels  </li></ul></ul><ul><ul><li>Dwindling sea catches - mo...
<ul><ul><li>More stringent regulations on manufacturing and management of natural resources weigh on production costs </li...
FOOD COMMODITY INDICES Source: WB, DECPG
COMMODITY PRICE TRENDS  (2007-PRESENT) Source: IMF
COMMODITY PRICE TRENDS  (2007-PRESENT) Source: IMF
COMMODITY PRICE TRENDS (2007-PRESENT) Source: IMF
COMMODITY PRICE TRENDS (1980-PRESENT) Source: IMF
US FREIGHT TRENDS (2010-2011) Source: Crown Master Trd.  Ltd.
FEED   INDUSTRY   CHALLENGE <ul><li>Food commodity prices have reached new levels  </li></ul><ul><li>New dimensions have r...
VALUE LOSS DUE TO COMMODITIZATION <ul><li>Obscures meaningful differentiation among different sources of same ingredient <...
VALUE  PRICE <ul><li>The economic value of each material is unique to every user.  It depends on numerous factors such as ...
DETERMINING OPTIMAL FEEDING VALUE  HAS A UNIQUE SOLUTION Nutrient  Assignments/Feeding  Values Underestimate (upgrade) Ove...
SAMPLE CHART: RELATIVE VALUES BASED ON NUTRIENT DATA  Shadow Prices Source: NutriQuest
SAMPLE CHART: CHANGE IN NUTRIENT COMPOSITION AND RESULTING FEEDING VALUE Source: NutriQuest
ALTERNATIVE RAW MATERIALS AND PROCESSED FEEDSTUFFS <ul><li>Less traditional feedstuffs are less likely to have robust nutr...
ENZYMES <ul><li>Since the past decade, developments in enzymes technology and their usage have grown steadily in the feed ...
OPTIMIZATION: ENABLING LEAST COST PLANS <ul><li>Optimization works best in an environment with the most allowable degrees ...
END
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Michael Arcinas: Feed Purchase Management: Challenges following the significant volatility of global commodity prices

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Michael Arcinas' presentation during the Feedtech-Croptech Economic Track Conference at VIV Asia 2011

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Michael Arcinas: Feed Purchase Management: Challenges following the significant volatility of global commodity prices

  1. 2. CURRENT ISSUES <ul><li>Food commodity prices have been extremely volatile in recent years. </li></ul><ul><li>Sharp increases in basic staples in recent months are weighing heavily on the world food industry which is still reeling from the effects of the 2008 global commodity price crisis. </li></ul><ul><li>Soaring energy prices and consequent rise in inflation threaten to hamper global economic recovery </li></ul>
  2. 3. KEY FACTORS THAT IMPACT ON COMMODITIES: SHIFTING GLOBAL ECONOMIC FORTUNES <ul><li>Rise of new economic powers and focus on emerging markets bring changes in consumer behavior </li></ul><ul><li>Global economic growth is currently driven by Asia </li></ul><ul><li>Income elasticity of demand – increase in per capita consumption – inflation </li></ul><ul><li>Supply and demand imbalance </li></ul>
  3. 4. KEY FACTORS THAT IMPACT ON COMMODITIES: CLIMATE CHANGE <ul><ul><li>Weather extremes becoming more prevalent </li></ul></ul><ul><ul><li>Increasing adverse impact of weather disturbances on crop yields </li></ul></ul><ul><ul><li>Weather uncertainty further heightens speculation on commodity prices </li></ul></ul>
  4. 5. <ul><ul><li>High crude oil prices - increasing demand for bio-fuels </li></ul></ul><ul><ul><li>Dwindling sea catches - more extensive fishing bans </li></ul></ul>KEY FACTORS THAT IMPACT ON COMMODITIES: STRAIN ON NON-RENEWABLE RESOURCES
  5. 6. <ul><ul><li>More stringent regulations on manufacturing and management of natural resources weigh on production costs </li></ul></ul>KEY FACTORS THAT IMPACT ON COMMODITIES: ENVIRONMENTAL ISSUES
  6. 7. FOOD COMMODITY INDICES Source: WB, DECPG
  7. 8. COMMODITY PRICE TRENDS (2007-PRESENT) Source: IMF
  8. 9. COMMODITY PRICE TRENDS (2007-PRESENT) Source: IMF
  9. 10. COMMODITY PRICE TRENDS (2007-PRESENT) Source: IMF
  10. 11. COMMODITY PRICE TRENDS (1980-PRESENT) Source: IMF
  11. 12. US FREIGHT TRENDS (2010-2011) Source: Crown Master Trd. Ltd.
  12. 13. FEED INDUSTRY CHALLENGE <ul><li>Food commodity prices have reached new levels </li></ul><ul><li>New dimensions have recently emerged in commodity price economics. The rules of the game are changing fast. </li></ul><ul><li>The feed industry is under tremendous pressure, with rapidly increasing cost of inputs on one end and the burden of keeping delivered costs of end products viable on the other . </li></ul>
  13. 14. VALUE LOSS DUE TO COMMODITIZATION <ul><li>Obscures meaningful differentiation among different sources of same ingredient </li></ul><ul><li>Discourages further product development </li></ul><ul><li>Promotes unhealthy competition </li></ul><ul><li>Prices may not reflect to true economic value of ingredients </li></ul>
  14. 15. VALUE PRICE <ul><li>The economic value of each material is unique to every user. It depends on numerous factors such as geography, application and even market peculiarity. This presents a complex basis for the supply and demand behavior of many feedstuffs. </li></ul><ul><li>The feeding value of feedstuffs vary within the same type of material depending on local conditions, crop variety and processing. Nutritional parameters are not static. It requires constant updating to realize the best value for every ingredient offering into the overall product design and usage, and consequently, the purchasing strategy. </li></ul>
  15. 16. DETERMINING OPTIMAL FEEDING VALUE HAS A UNIQUE SOLUTION Nutrient Assignments/Feeding Values Underestimate (upgrade) Overestimate (downgrade) Optimum (Maximum Potential)
  16. 17. SAMPLE CHART: RELATIVE VALUES BASED ON NUTRIENT DATA Shadow Prices Source: NutriQuest
  17. 18. SAMPLE CHART: CHANGE IN NUTRIENT COMPOSITION AND RESULTING FEEDING VALUE Source: NutriQuest
  18. 19. ALTERNATIVE RAW MATERIALS AND PROCESSED FEEDSTUFFS <ul><li>Less traditional feedstuffs are less likely to have robust nutritional data available while by-products and other intermediates exhibit much greater variations in feeding values. There is much potential in bridging the value gap for these materials because of the likelihood that the industry’s conservative treatment has undervalued such. </li></ul><ul><li>In the absence of readily available basic R&D capability, alternative raw materials can still be pursued aggressively with more empirical approaches (e.g. scaled live trials) until better information becomes available. </li></ul>
  19. 20. ENZYMES <ul><li>Since the past decade, developments in enzymes technology and their usage have grown steadily in the feed industry. </li></ul><ul><li>The elevated prices of feedstuffs stand to favor the wider use of enzymes and can be expected to overcome even the more conservative attitudes towards rebasing nutrient availability assumptions in line with enzyme application. </li></ul><ul><li>Further development and deployment of test and verification capabilities can significantly boost confidence in this area (e.g. in-vitro assays) </li></ul>
  20. 21. OPTIMIZATION: ENABLING LEAST COST PLANS <ul><li>Optimization works best in an environment with the most allowable degrees of freedom or least number of constraints. </li></ul><ul><li>The purchaser plays an important role in ensuring that no constraint which is otherwise preventable, presents itself to the feed formulator (e.g. quantity, availability, etc.) </li></ul><ul><li>Ingredient specifications should be designed to allow for parametric flexibility with out compromising final quality. </li></ul><ul><li>Overdesign provisions for milling facilities should be considered, particularly those which increases the mill’s ingredient options . The benefit from ingredient flexibility far outweigh the costs of overdesign in the mill. </li></ul>
  21. 22. END

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