Ask any poultry producer in the UK what factors are currently denting business performance and high feed prices is likely to top the list.
But as Alan Murphy explains, the main reason why feed prices have become such an issue is because raw material prices have shot up across the world. This is the result of a pretty steep increase in demand, particularly for meat products in Asia and for biofuels in the USA.
In addition to this increase in demand is the impact of reduced yields around the globe, which means international stocks are at record lows. This is especially true for wheat, which is in very short supply.
What can the poultry sector do?
Anything that people can do to improve efficiency is important. But, they also need to take every opportunity to add value to the product they sell. That will allow them to achieve better margins through differentiation.
We are already seeing a number of processors and customers doing this in the UK, but more needs to be done. Producers should also consider longer term raw material purchasing strategies. Due to extreme market volatility, it's better to plan ahead than play the markets on a daily/short-term basis.
How is ABN helping the sector address this issue?
We are now advising customers on raw material issues, explaining the market to them, understanding their strategies and helping them build up their own raw material positions. We are also helping our customers to forecast more accurately how much feed stock they will need and when they want it. This ensures we only purchase what they need and don't end up short or long of commodities and hence save money.
Our relationship with our customers is, and has to be, much closer these days. It's not just about buying feed anymore. It's becoming more about how and when you buy it and what the added value is that it brings to a customer's operation.
Have you had any success with this new approach?
Yes, customers say they benefit from all this advice and our approach. This includes understanding what the customers need and tailoring our offering to them. We are not just selling feed anymore. We are providing a total service - and our customers appreciate this one-to-one approach.
What do you think is going to happen to cereal and soya prices?
We are seeing more wheat being planted here in the UK now and I expect the pressure on prices to start easing slightly from harvest onwards as world stocks start to rise from an historic low position - assuming no serious weather issues, of course. However, soya is a bit different, because corn [maize] appears to be winning the fight for farmland for biofuels in the USA at the moment and that is pushing up the global price of soya.
That is likely to continue and one must not forget about the rising demand from China, which is adding pressure to the market. I have a feeling that soya prices will remain strong next year.
The other key factor in the global commodities market comes from other investors. The market volatility has attracted the attention of world-wide investment funds this now adds another dimension to the more predictable supply and demand ratios.
Will the current international credit crunch and economic turmoil across the world affect feed prices?
Yes, that is possible. If people have to borrow money, that adds pressure to the market and everyone's ability to finance their businesses will become another factor to consider.
How do you see the future?
Processors and other customers will have to get much closer to their feed suppliers, forming partnerships to increase supply chain efficiency and using feed to help them develop new products together. There is more to feed than just price. We all need to look more closely at the market and raw materials to see how we can use feed to add value to the final products. That will be a major factor between success and failure.