Prices of raw materials in 2021 and adjustments in the formulation so as to optimize the cost.

As of today, June 2019, we have now spent more than eight months in a difficult situation regarding the prices of the raw materials used in the manufacture of animal feeds. 

If we analyse the evolution of the price of raw materials between September 2020 and May 2021, we can conclude in general terms that there has been an increase of around 65% in the price of fats, 30% in the price of cereals and 15% in the price of soya. This increase caused the average price of the formulation for fattening feed to rise from 231.5 €/Tn in September 2020 to 316.83 €/Tn in May 2021, an increase of over 35%. This increase will have an impact on the cost/Kg gained for the pigs fattened over this period.

Using the same conversion rate, with a feed price that is 35% more expensive, costs could rise by over 0.20 €/Kg gained. This means that fattening a pig from 20 kg to 120 kg would cost €20 more.

The prices used in this analysis were referenced from the Lonja de Barcelona wholesale market. 

We can also assess how the sales price has changed over the same period. At the end of September 2020, the price was 1.30 €/Kg and this gradually fell to 1.10 €/Kg in December, remaining stable until February when it began to increase again till May 2021, when it reached 1.53 €/Kg. In short, in May 2021, the sales price was 17% higher than at the beginning of this period and 39% higher than in the two-month period when it fell to 1.10 €/Kg. 

Although we still do not know when and to what extent the situation we have been experiencing will right itself, it could be seen as an opportunity to find a solution, through the formulation, which will enable us to continue making maximum returns on production and prepare ourselves for a possible new downward trend in the sales price or an even greater upsurge in the price of raw materials. 

The initial strategy could be based on substituting, either fully or in part, the raw materials that are most pushing up the price of the formulation. These could be replaced with other less frequently used materials. Obviously, the increase in demand for these materials would push up their price, so obtaining virtually no reduction in the price of the formulation. 

Two considerations must be borne in mind when using these replacement materials. Firstly, we must check and ensure the nutritional values of the matrices we use, as these raw materials could have a higher variation coefficient in terms of their composition, as in many cases they are sub-products. 

Secondly, we must follow the recommendations with regard to the maximum limits for certain ingredients in the formulation. The sense of security provided by quality cereals (corn, wheat and barley) or soya contrasts with the caution required with certain sub-products when it comes to taking their maximum limits as ingredients into account. 

This strategy allows more room for manoeuvre in pigs during the fattening phase and in sows during gestation. We should be very cautious in the lactation phase and above all in suckling pigs in which changes of this kind are not recommended. Suckling pigs, both when they are feeding on their mothers’ milk and when newly weaned, are more sensitive to certain characteristics of these sub-products. For example, peas or lupin beans could sour the palate of a suckling pig, but would have almost no effect on a sow. 

The second strategy involves analysing the impact of an increase in the price of the feed (as a result of the increase in raw materials prices) on profits, also bearing in mind the sales price of fattened pigs. 

We should focus above all on the fattening phase, as from an economic point of view this is the phase with most impact on the final cost of the fattened pig. As in the previous strategy, sows and suckling pigs would be excluded. 

This strategy is based on the idea of reducing the net energy requirements of the formulation, while bearing in mind that this will worsen the conversion index. In other words, the pigs will need to eat a little more feed, but as this will be cheaper, the cost per kilo gained will be lower. 

There are, however, various other questions that must be considered. 

We must also be sure of how the animals will respond to the energy, in terms of the conversion rate, growth and voluntary ingestion. In other words, this initial information must be available. 

When assessing the response of the animals, we must ensure that this is for the same kind of facility, time of year and state of health, so as not to alter previous indices. 

The aim is to change the net energy value, to reduce it, while at the same time maintaining the ratios with the nutrients that are closely related with net energy, such as SID Lysine, SID P, etc. 

Limitations in terms of the maximum Gross Protein criteria (areas with limits on excreted nitrogen due to slurry issues) and/or in terms of the supply of certain raw materials (due to their availability) may interfere with the result. 

Nowadays, there are tools that enable us to determine the most profitable net energy level according to the prevailing scenario at any given time (production levels, price of raw materials and sales price). 

The aim is to determine whether an increase in the price of the formulation would be profitable in terms of the increase in net energy this could provide. In other words, how far can I increase the net energy of the formulation so as to remain profitable, despite the increase in price due to the rise in raw materials prices. 

By conducting a parametric analysis on net energy with the formulation programme, we will find out how the end price of the formulation gradually increases in line with the rise in net energy requirements. In this way we can obtain different diets in which the higher the net energy value the higher the price.

We can simulate the way the animals will respond to each diet and compare the profits obtained, bearing in mind the sales price for pigs at that time, the cost of feeding them and the cost of the facilities required for each diet. 

If we work with a fixed finishing weight and assume a set number of days required to reach this weight, we can select the net energy value that achieves the lowest cost in feed + facilities. 

If there is a time limit in terms of the number of days (due to a need for places), loading at a variable weight, we can choose the net energy that offers the highest profit margin after subtracting the cost of the feed from the overall cost (taking into account the sales price and the weight gained according to the energy intake). 

Energy is the most expensive nutrient when it comes to designing a diet. This fact is even more important today and could force us into less profitable situations if we do not establish exactly where the limits for action lie. 

With this strategy we can adjust the net energy of our diets slightly in line with the current situation of high raw materials prices, in this way maintaining the profitability of our business.

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