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    Debbie Phillips-Donaldson, editor-in-chief of Petfood Industry, shares her insights and opinions on all things petfood, addressing market trends as well as news and developments in pet nutrition, food safety and other hot topics for the industry.

    Petfood ingredient purchasing strategies in a volatile market

    Jan 24, 2013 By Debbie Phillips-Donaldson

    If you are responsible for procuring and purchasing commodity ingredients for your company's petfoods -- or you formulate with such ingredients -- you probably are already aware that 2013 is shaping up to be another challenging year. (The same is true for meat ingredients, since that meat often comes from animals that eat commodity grains.) But do you know where specific challenges lie and how to prevent or handle them?


    In a webinar earlier this week, "2013 Feed Grains, Wheat and Oilseeds Commodity Outlook" (hosted by WattAgNet.com), Tim Brusnahan, VP of consulting for Richard A. Brock & Associates Inc., provided an outlook for grain supplies and prices for the year based on the January 11 crop reports from the US Department of Agriculture (USDA). If you missed the webinar, you can view and listen to a recorded archive. (You will have to register; registration is free.)

     

    Some highlights (or "lowlights," depending on your perspective) from Brusnahan's outlook:

    • Supplies of US corn and soybeans have improved slightly after declines resulting from severe drought.
    • Usage of feed grains (milo, barley and oats) and wheat has increased, with increases ranging from about 10% (oats) all the way up to 113% (wheat).
    • World supplies of course grains, soybeans and wheat have become tighter.
    • USDA anticipates that the US will need to import about 100 million bushels of corn -- a record (most will come from the Windsor, Ontario, Canada, region).
    • Conversely, US exports of corn will likely drop about 40%.
    • Other countries -- notably Argentina, Brazil and Ukraine -- are starting to fill the gaps in global corn supply.
    • The price of corn will remain volatile this year, though the market has become more elastic and able to withstand the volatility.
    • The drought in parts of the US is persisting and even intensifying (see the latest outlook map, through April, from the US National Weather Service).
     

    The webinar recording contains other interesting information. But perhaps most helpful are some buying strategies Brusnahan recommended: 

    1. At minimum, have a 60-day supply of the grain ingredients you need.
    2. Then, be looking to cover such ingredients through July 1.
    3. Futures or option contracts do not act as a favorable hedge when supplies are this tight, basis this narrow and logistics this challenging.
    4. Watch out for new crop winter wheat futures! Winter wheat acres have increased by about 500,000 acres; those futures can impact other crop futures.
    5. Drought conditions extending into late April could ignite another supply-driven rally for wheat that can influence corn supplies and prices.

     

    Even if your product formulations do not include corn, wheat or similar ingredients, the supply and prices of those crops definitely affect other ingredients, including meats. As for livestock in the US, Brusnahan ended with the good news that while the US beef industry is struggling, the poultry industry has managed its challenges well (partially because it benefited from being located near US southern corn and other crops not affected by the drought) and is on the rebound from rockier times last year. And the pork industry is doing quite well -- perhaps a new protein source for petfoods?

     




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