Opportunity with a side of restraint
Processors who resist the temptation to overproduce in response to favorable short-term commodity markets can set themselves up for longer-term successes.
We’re starting the new year off with a really favorable commodity environment for protein producers. The price of corn is hovering around the $4 mark and soybeans are hovering under the $10 mark. There’s no reason to believe we won’t have another great crop in 2016. No doubt a very attractive futures price will be available. If I were a producer, I would be tempted to lock in a percentage of my requirement at an attractive futures price for both corn and soybeans for my 2016 rations.
Crude oil prices are also extremely low. All my friends in the oil business tell me that more than 10 percent of their oil production has been going in a tank for the last year. Pretty soon, tank capacity will be maxed out and product will have to come to market. Unless an international incident occurs, this will guarantee inexpensive energy for at least the first six months of 2016. Low energy prices typically affect the price of corn, which will contribute to inexpensive corn for a significant period of time.
Statistical analysis says the aforementioned commodities move up and down in price together. Mathematical modelers have developed price-prediction formulas that include the exchange rate; the price of agricultural inputs such fertilizer, pesticides (which are 50 percent related to the price of oil); diesel fuel; the value of other key commodities; and weather, which has a dramatic effect on the supply of crops.
This current favorable commodity environment typically encourages producers to overproduce protein. As usual, I would encourage all my friends to be responsible and not get greedy. Don’t produce it if you don’t have a customer or a plan for the product. With the current oversupply on most major proteins, except eggs and turkey, we need to cut back and take profits. Don’t get greedy; just get wealthy.
The road ahead
In our business, change is constant — either you’re improving or you’re static. I understand short term this is a very competitive marketplace; however, the environment long term will be really good. The key is to embrace change and innovation. This road will not be without potholes and challenges. We are no longer an agrarian society. The majority of people have no idea what happens on the farm. They don’t understand it, and they want to legislate against it. Without us, they will go hungry. But the new generation wants it now and really doesn’t understand how it is done or what it takes to make it happen. We will be asked to do a whole lot more with the same amount of land and a whole bunch of new restrictions. Just today in my hallway, a really smart engineer thought he was talking about GMOs but he was really talking about artificial sweeteners. That’s the level of ignorance we are dealing with. If you look at how far performance improvements have come since the 1950s until now, it’s astounding. By the year 2050, consumers worldwide will demand 60 percent more protein. We need to produce that on an environmental footprint similar to what we have now and with a lot more regulations and new restrictions.
I want to highlight several innovative concepts that are helping us close the gap to improve our performance.
• We know animals perform/grow better when they are happy and calm. There is a company in Minneapolis that has studied the behavior of animals and how their activity is affected by different colors/spectrums of light. Based on their findings, this company has configured digital lighting for grow-out housing that produces the appropriate light spectrums for the animals to be happy and to maximize their productivity. This change in behavior can shorten the grow-out cycle by days, reduce mortality and improve fertility. These environmental changes result in improved feed conversion, accelerate growth, accelerated sexual development, it reduces activity, and improves fertility with a reduction in aggressive behavior. These products are in use by 16 of the top 20 shell egg producers. Unique custom application lighting is also available for broilers, swine, dairy cattle, aquaculture and turkeys.
• Feed additives have always played a role in overall production and quality. Prebiotics are moving to the forefront as a poultry feed additive with a positive effect on the microflora activity and growth in the gastrointestinal tract, which in turn can lead to improved egg production and shell quality in broiler chickens. Unlike probiotics that are affected by the bird’s physical state, prebiotics are more stable and can withstand a broad range of environments. There are numerous other additives with benefits to broiler chickens. For example, studies show the benefit of vitamins A, C and E with the results of increased hatchability, improved fertility and reduced mortality. This market is not limited to chickens, and with improved health of an animal comes improved product.
• Third World countries are stepping up as well in efforts to find a way to feed the ever-growing global economy. With poor soil conditions covering many acres, efforts are under way to stimulate crop growth through soil biological conditions and bio-stimulants/bio-fertilizers. Countries that were otherwise only able to grow limited crops and livestock, such as Nigeria, now have trial farms popping up across their nations as they take part in innovative initiatives to feed their livestock and people. With the increased fertility of these fields, shortened crop grow time and improved produce are expected outcomes. Added benefits can also include resistance to pests and diseases as well as better developmental growth of the plants themselves. It should be noted these bio-fertilizers are not only crop specific, but also are customized for the climates and conditions to achieve the greatest outcome. Ultimately, better crops benefit all.
So while our industries’ initial reaction to new innovations and increased regulation can be to throw our hands up, I suggest we embrace these changes and new ways to improve performance. Benjamin Franklin said it best more than 200 years ago: “When you’re finished changing, you’re finished.” NP