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

CURRENT ISSUES
Food commodity prices have been extremely volatile in recent years.
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.
Soaring energy prices and consequent rise in inflation threaten to hamper global economic recovery

KEY FACTORS THAT IMPACT ON COMMODITIES: SHIFTING GLOBAL ECONOMIC FORTUNES
Rise of new economic powers and focus on emerging markets bring changes in consumer behavior
Global economic growth is currently driven by Asia
Income elasticity of demand – increase in per capita consumption – inflation
Supply and demand imbalance

KEY FACTORS THAT IMPACT ON COMMODITIES: CLIMATE CHANGE
Weather extremes becoming more prevalent
Increasing adverse impact of weather disturbances on crop yields
Weather uncertainty further heightens speculation on commodity prices

High crude oil prices - increasing demand for bio-fuels
Dwindling sea catches - more extensive fishing bans
KEY FACTORS THAT IMPACT ON COMMODITIES: STRAIN ON NON-RENEWABLE RESOURCES

More stringent regulations on manufacturing and management of natural resources weigh on production costs
KEY FACTORS THAT IMPACT ON COMMODITIES: ENVIRONMENTAL ISSUES

FOOD COMMODITY INDICES Source: WB, DECPG

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
Food commodity prices have reached new levels
New dimensions have recently emerged in commodity price economics. The rules of the game are changing fast.
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 .

VALUE LOSS DUE TO COMMODITIZATION
Obscures meaningful differentiation among different sources of same ingredient
Discourages further product development
Promotes unhealthy competition
Prices may not reflect to true economic value of ingredients

VALUE PRICE
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.
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.

DETERMINING OPTIMAL FEEDING VALUE HAS A UNIQUE SOLUTION Nutrient Assignments/Feeding Values Underestimate (upgrade) Overestimate (downgrade) Optimum (Maximum Potential)

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
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.
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.

ENZYMES
Since the past decade, developments in enzymes technology and their usage have grown steadily in the feed industry.
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.
Further development and deployment of test and verification capabilities can significantly boost confidence in this area (e.g. in-vitro assays)

OPTIMIZATION: ENABLING LEAST COST PLANS
Optimization works best in an environment with the most allowable degrees of freedom or least number of constraints.
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.)
Ingredient specifications should be designed to allow for parametric flexibility with out compromising final quality.
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.

http://www.vivasia.nl	291
http://translate.googleusercontent.com	4
http://www.vivindia.nl	1

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

by VIV Corporate on Mar 11, 2011

Accessibility

Categories

Tags

Upload Details

Usage Rights

3 Embeds 296

Statistics

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