Buying in the spot market
A surprising number of mill managers freely admit that their plant is under-equipped to take full advantage of the situation.
One headache waiting for anyone who is operating a new turn-key mill is that the time will come when much of the equipment it contains may need either serious maintenance or even replacement – all at the same time. The more regular (if less dramatic) steady drip of demands for upkeep in an evolved older plant can seem almost preferable by comparison.
In both instances, however, it could well be the state of the reception and storage facilities for raw materials that will clamour first for attention.
A little of this may be due to the famous vulnerability of storage bins, not only to corrosion, but also to damage from human intervention. Some silo structures at a mill bear the appearance of having been attacked by a demented giant. But the chief damage-maker usually is a vehicle, more specifically one of the delivery trucks carrying the latest raw material influx.
Few mills manage to avoid at least a handful of collision between vehicles and bins. Another target can be the hinged cover over a reception pit.
A word of sympathy for the drivers might be appropriate here. After all, examples are many of the mill with a narrow entrance to its grain reception area or with an extra-tight turning circle that every truck must complete.
These can place great demands on even the most skillful driving. In fact, as many of the collisions that occur are likely to have been caused by poor design as by errors of navigation. We notice, too, the number of plants that fail to leave enough room to accommodate several trucks arriving at once. Perhaps they did when they were built, but later on took the parking space to fit in an extension.
Until the day arrives when all pits and bins are automatically impact-proof, we cannot expect to be free of the need to repair and replace them as their state dictates. But the necessity might even be a blessing in disguise, in the currently volatile marketplace. Yes, it means spending out when money is tight, but here could be the chance to respond practically to a major aspect of the changing market over the past two years.
In purchasing ingredients, we have what is essentially a simple choice. Either we buy spot or we buy forward. My impression from a totally random survey of views is that recent events have made the spot market appear the more favourable for many mill operations.
Yet, a surprising number of mill managers freely admit that their plant is under-equipped to take full advantage of the situation. They lack the storage volume to receive an immediate delivery of a large quantity of grain (for example) found to be available at a reasonable price. At the other extreme, their stores are not flexible enough to deal with smaller lots of a wider range of raw materials.
So a good case can be made right now for at least considering an investment in an improvement to the raw-material facilities. Extra bins or sub-divided cells are not especially expensive when compared with some of the machinery that a mill might buy. Their true cost, however, may be in the additional area they occupy on the site. Let us just hope that it was not land that the delivery vehicles had used while bringing in the next consignment!
Will ingredient prices ease?
Most European feed manufacturers were said recently to believe that their ingredient prices would ease in the second half of 2009.
As forecasts go, this one seems a fairly safe bet. We know the marketable supplies will be boosted after mid-year by the new harvest in Europe. Plus, we know that the overall demand for macro feed ingredients (and most micros) is reckoned to have dropped this year. In other words the classic supply-demand equation would look to be moving back into balance and therefore, by all logic, prices will trend lower.
So far so good, even if it does mean that the annual turnover of the typical mill appears less as a result. What complicates the picture at a practical level is that grains are not a simple commodity when viewed from a European perspective.
Take the most obvious case, involving cereals that are certified as suitable for including in organic or biological livestock diets. There is not much sign at present that much more organic grain will be in the pipeline for Europe’s needs this year. Indeed, an assortment of difficulties in the usual supply countries such as the Ukraine make it probable that the Europeans will again struggle to source enough for their requirements.
As we report in more detail elsewhere in this issue, an even bigger obstacle is the regulatory attitude of the European Union with regard to material of a genetically modified origin. Only a limited number of varieties have been approved for feed use in the EU-27 and the approval process does not seem to be becoming any faster.
Worse yet, supermarket chains in some places are dictating that they will not allow any GM-type ingredients in the feeds used for the products they sell. Their power is absolute, so their suppliers must comply. The result is a significant narrowing of the opportunities for buying grains at the right price.