Rabobank predicts longer term feed sourcing strategies with less spot market contracting

Current trends suggest oilseed derived protein meal supply and demand balance may experience pressure over the coming decade which, in turn, will trigger a range of responses along the meat production supply chain, reported the Dutch bank’s industry note. 

“The increasing share of protein in feed, combined with increasing meat consumption and absolute population growth, raise important questions on how the supply of vegetable meals can keep pace with rising demand for animal feed,” ​said the analysts. 

The business model they see gaining greater traction in animal production is one involving the vertical integration of vegetable meal and meat production. “Meat production is, therefore, likely to shift more to soy producing regions. Longer term feed sourcing strategies, as well as warehousing, will also be deployed more with less spot market contracting,”​ said the industry note. 

Strategies to counter supply volatility ​

Clara van der Elst, senior analyst in Rabobank’s food and agribusiness supply chain research division, has, along with her team, plotted how companies in the agribusiness sector can deploy certain strategies to deal with the opportunities and risks presented by precariousness in protein meal supply. 

“These vary along their position in the supply chain, but consist of roughly two kinds. The first is R&D or technology, in areas such as crop yield improvements, feed formulation, feed conversion and alternative feed protein development. ​ ​

The second is for business strategies to involve closer alliances and potentially integration between companies operating in adjacent steps of the supply chain,”​ said van der Elst. 

She told us vertical integration can take place through acquisitions, joint ventures, organic growth or longer term supply contracts. 

If a company is “active on more steps of the supply chain, whether combining feed mills and meat production - two steps - or grain and oilseeds production along with feed and meat production – three steps – it is better able to balance price movements, improve its market positioning and lower its financial costs,”​ she said.

Feed production, said van der Elst, is increasingly becoming a knowledge and R&D intensive business and the commodities game is a very consolidated industry, so a feed micro-ingredients company can benefit from integration with a grain and oilseeds (G&O) trading firm in terms of scale.

“Where G&O traders have expanded, albeit mostly organically, it has been in feed production. Cargill is of course the furthest [along], with a wide global span as well as covering everything from beef to aqua. But others [grain traders] are definitely following, whether moving more into feed production, expanding their global feed production footprint or into more feed animal types such as aqua,”​ she said. ​

Rabobank protein supply industry note: key findings ​

Animal feed use of protein meal from soybeans, rapeseed and sunflower crops, driven largely by China’s growth, went from 160 million tons in 2003 to 257m tons in 2014, found the report. 

Price for soybeans more than doubled between 2005 and 2014 due to demand and poor harvests unable to ensure supply growth.  And, while excellent soybean harvests in the past two years have set things right again, ensuring stock to use rations across the global are at record highs, the Rabobank team said a disappointing harvest is just one drought year away. 

The analysts further noted how the projected slow-down in growth in biofuels – mandates for which drove up protein meal production in the past decade - will also alter the protein meal landscape and put the pressure firmly back on soybean yields, which are vulnerable to drought and disease. 

While acreage expansion may continue to provide a fall back option for lifting supply, land scarcity is a potential barrier to that, ultimately maintaining pressure on prices, they said. 

And the agribusiness experts thus expect significant periodic bouts of price volatility to remain the norm for the coming decade. 

Hike in intensive farming globally ​

The Rabobank report also outlined how the intensification and modernization of feed production in emerging markets, improved animal genetics and growth rates, and a growing preference for poultry and fish over beef and pork globally are the factors supporting higher use of protein in feed.

Vegetable meal inclusion, the researchers predict, will rise from 5 to 15% per kilogram of meat, dairy or fish produced by 2023 as more animals are reared in modern confined settings in the developed world. 

The trend of increased poultry and fish consumption globally, said the analysts, is seeing more vegetable meal use in feed as poultry and farmed fish, due to their faster growth rates and high feed conversion efficiency, require a higher share of protein in their feed ration compared to cattle or pigs.