An unusual mixture of apprehension and optimism has marked the past year for feed companies around the world.
Their executives remain apprehensive about the market’s short-term prospects, with several indicating a drop in tonnage as likely for their business in 2008-09. At the same time, a number of them have demonstrated their belief that the medium and longer terms still contain fundamentals for further growth.
Reinvesting, looking forward
Feed ingredients giant Archer Daniels Midland (ADM) provided an example when referring recently to its financial year that ended in June 2009. According to the company, in the fourth quarter of this period it felt the impact of the global economic downturn as full-year net sales fell 1% to US$69.2 billion. ADM chairman and Patricia Woertz observed that “as we look ahead, we see signs of improving demand in the various food, feed and fuel markets we serve”.
The immediate view of the feed scene in Europe is that demand will drop because of lower livestock production, according to Per Strömberg, CEO and group president of farmers’ co-op Lantmännen in Sweden.
The group’s earnings have been affected adversely by the downturn that started in the second half of 2008, he reported. Net sales at its Lantmännen Lantbruk feed and grain division fell by 23% in the past year as a result of sharply lower sales volumes.
Nevertheless, Lantmännen still has been investing in a new feed plant (in Lidköping, Sweden). It has also initiated a three-year programme of restructuring and cost control. As from 1 October 2009, the new group structure will consist of four sectors — agriculture, energy, farm machinery and food.
The overall reorganization hopes to save 400 million Swedish krona for the group over the three-year period, including a saving of about 100 krona for agriculture (Lantbruk). Each of its feed plants is to have a new focus on productivity as part of the plan.
Poor profits in milk production cited
Other companies on our annual list of Top Feed Manufacturers echo that poor profits in milk productions have driven those farmers to using lower-performing, lower-priced feed.
There are opinions that market conditions will promote more feeds to be made or mixed on the farm rather than bought as complete rations. The size of the farm-mix business worldwide is estimated by Provimi as approaching 400 million metric tons annually, compared with about 700 million metric tons for industrially manufactured livestock diets.
We see some of the names on our Top Companies list taking a greater interest in the on-farm feed sector by developing their production and sales of premixes.
The name at the top of the list is Charoen Pokphand or CP, the Thailand-headquartered conglomerate that reported sales revenue of 156.2 billion Thai Baht in 2008 for Charoen Pokphand Foods (CPF) and its 75 subsidiaries operating in Thailand and overseas.
About 63% of the revenue was from the domestic market, 16% from exports and another 16% from overseas operations. A production of 4.5 million metric tons last year within Thailand confirmed the company’s status as also the largest feed manufacturer nationally.
“A most challenging year”
In a stockmarket report, CPF called 2008 a most challenging year since the downturn caused high volatility in consumer products, including oil and raw materials for animal feed, obliging the company to delay its investment and business expansion while focusing on cost reduction.
But president/CEO Adirek Sripratak and CP Group chairman Dhanin Chearavanont were present with other dignitaries at an official launch in 2009 of a feed mill at Lukhovitsi, in the Moscow region of Russia, costing US$50 million and capable of producing 240,000 metric tons per year.
CPF has been in Russia since 2006 and plans to build pork-producing complexes in two Russian regions.
Two more high-volume players in our annual survey have announced a high-profile deal this year that has seen mills operated in Spain and Portugal by Cargill Animal Nutrition bought by Nutreco of the Netherlands, subject to approval by the European Commission competition authorities.
Other purchases by Nutreco in the past 12 months have grown its premix activities in various countries including Indonesia. Although the Dutch company had reported a lower operating profit for the first half of 2009 due partly to a 7% drop in feed volumes, it also said its acquisition of the 12 feed plants from Cargill would help it win market share.
Even after the deal, Cargill reckons that its animal nutrition business has production facilities in 28 countries. Its European operations include feed mills and premix plants in Italy, Hungary, Netherlands, Poland, Romania and Switzerland and now also in Russia with the opening of a US$12.5 million mill with a 250,000 metric tons/year production capacity at its industrial complex in Efremov, about 300 kilometres south of Moscow.
In addition, Cargill will invest US$8.5 million in constructing a premix facility as an extension to the mill. This new line is expected to be completed by summer 2010 and will operate under the LNB brand, producing up to 50,000 metric tons/year of premixes and young animal feeds.
Malcolm Sayer, general manager of Cargill's animal nutrition business in Russia, commented that “the addition of our production facilities in Efremov to the others we operate in Poland, Romania and Hungary demonstrates our commitment to both the animal nutrition industry and to the region — we are committed to growing our presence in the East European feed and premix industries."
Tale of two halves
Greg Page, Cargill chairman and chief executive officer, has referred to the group’s latest fiscal year as a tale of two halves. Whereas the group had posted record results until November, earnings in the second half of the period slowed considerably as the world economy contracted.
For the full fiscal year, Cargill earned US$3.33 billion. Even while this was 16% less than in the previous year, it still made 2008 the second-best year in the company’s history.
Page added that Cargill expected the effects of the decline in world economic growth to persist for some time. “The path to economic recovery may well be uneven, but Cargill remains optimistic.”
Danish co-operative DLG reported that a new premix factory in eastern Germany for its Deutsche Vilomix operation should be ready by the end of 2009 at a cost of €6 million. The company also had had a dynamic year in 2008, increasing its feed market share in Denmark by about 4 percentage points besides becoming full owner of Swedish subsidiary Svenska Foder after buying the 49% stake held by Lantmännen since 2003.
British player BOCM Pauls confirmed in May 2009 that it secured a UK£77 million refinancing package with Lloyds TSB Commercial Finance.
Additionally, BOCM Pauls extended its manufacturing facilities by buying the feed division of Cranswick Mill Ltd based in north-east England, to make pig and poultry feeds for the UK and export markets.
In Mexico, poultry integrator Industrias Bachoco h expanded activities in the north-east of the country by buying a 3000 metric tons/week feed mill from Productora de Alimentos Pecuarios de Nuevo Leon through a subsidiary.