AMINO REPORT

August 2020

Indication prices

(average cost and freight to Durban)

L-Lysine HCI

ZAR 17,28

L-Lysine sulphate

ZAR 10,99

L-Methionine

ZAR 37,62

L-Threonine

ZAR 19,45

L-Tryptophan

ZAR 108,99

L-Valine

ZAR 74,00

L-Arginine

ZAR 102,25

Headlines

CHINA and SOUTH EAST ASIA

  • Concerns about China sticking to its end of the Phase 1 trade deal with the United States (US) are starting to fade as major grain deals have been struck in the last few weeks. Chinese buyers started to book increasing volumes of grain from the US late in July, and that momentum has been maintained throughout August. Contracts for maize and soybeans have been continuously concluded for the 2020/2021 season throughout the month. It is not all about grains either; China also booked the largest volume of beef from the US in the week ending 20 August, the largest weekly buy since 1999. The sale of 3 315 t of beef was accompanied by a deal for 11 216 t of pork. The total Chinese of agricultural purchases from the US since January is reported at USD 7,3 billion (ZAR 121 billion) so far, but a recent report by the Chinese Ministry of Agriculture that raised its outlook for maize and soybean consumption supports the recent indications that China may just get close to their goal. The increase in consumption is underpinned by a rapid repopulation of the swine herd, while poultry producers are pushing expansions to plug the local meat supply gap. According to the report, overall maize demand will reach 288 million tonnes, an increase of 0,9% from the previous month. Although feed demand is up by 2,3%, it is offset by lacklustre industrial numbers due to higher production costs limiting profitability. Chinese maize prices have been stubbornly high as inventories are continuously being depleted. Previously massive state stockpiles have also been reduced, fuelling local maize prices and putting maize processors and amino acid producers under strain. However, this also means more maize imports. In contrast, Chinese soy crushers are more than happy to crank up soybean purchases. Crush margins are among the highest in recent months because growing feed demand from both swine and poultry are keeping inventories low. As Brazilian stocks start to dry up at the end of their season, beans from the US are in the cross-hairs to keep Chinese crushers going. China is expected to import at least eight million tonnes of beans per month in the last quarter. Chinese soybean imports were up by 18% for the first half of 2020, compared to last year.
  • Ecuadorian shrimp and Brazilian chicken wings have become the latest vectors for COVID-19. Chinese authorities in the city of Yantai have identified traces of coronavirus disease on the packaging of shrimp imported from Ecuador late in July, after which imports from Ecuador were suspended. After widespread tests were conducted across numerous cities, a batch of Brazilian chicken wings also tested positive. The batch was traced to a private processing plant, Cooperativa Aurora Alimentos, the third-largest in Brazil. Aurora has subsequently suspended all exports to China. Brazil also sent inspectors to China to assess the situation, which could have very serious consequences, not just for Brazil but for all processors that export to the Chinese market. When China started to demand certificates declaring products to be free from COVID-19 in July, many exporters were quick to criticise, and not without merit, while others complied. At that point, it was believed to be extremely unlikely that the virus could survive on either food or packaging for more than a few hours. The World Health Organization (WHO) maintains that they have no evidence that either food or packaging poses any threat to spread the virus. However, as has recently been found, frozen or chilled products and their packaging can act as a reservoir for the virus. While Brazilian agricultural attachés are working with Chinese officials to resolve the crisis, Aurora has introduced stringent testing regimes at its facility. In response to all this, dozens of plants around the world with positive cases of COVID-19 have voluntarily suspended exports or have had their import licenses suspended by the Chinese authorities. In response, both Hong Kong and the Philippines suspended imports from specific processors. China’s nervousness about reintroducing COVID-19 through imports of frozen products is understandable under current circumstances. The country is importing more frozen meat products than before to balance a shortfall caused by the devastating African swine fever (ASF) outbreak that killed off about half of the country’s pig herd. Bear in mind, pork is a staple meat in China. In July alone, 430 000 t of imported frozen pork found its way onto Chinese supermarket shelves. That is a 136% increase when compared to July 2019 and excludes organ meat (which adds another 130 000 t) and beef (210 000 t). If just a fraction is contaminated with COVID-19, it presents a huge risk to reintroduce the virus throughout the country in a very short time. China is the world’s largest meat importer, with total imports for 2020 so far standing at more than five million tonnes. Given what was discovered in Ecuadorian shrimp, it is easy to understand their concern.
  • The concerns raised by the events described above further supports China’s efforts to rebalance the supply of locally produced meat with local demand. The pig herd is growing steadily, and all expectations are that pork production will reach pre-ASF levels by the end of 2021. The national herd grew by 13% and the sow herd by more than 20% in July, compared to last year. Strong pork prices and a series of changes in government policies aimed at supporting the industry have pushed many farmers and corporates to expand current operations, and to build new breeding and grower farms and processing facilities. More than 9 000 new large-scale farms have been put into operation since January, with 3 000 in July alone. But it is not just all about pork. Poultry producers have been aggressive in pushing through expansion plans. Chinese broiler farmers are expected to produce 18% more chicken this year than last year – 14,85 million tonnes to be precise. According to industry insiders, projects are underway to add one billion broilers to China’s annual production. To put that into perspective, China slaughtered 9,3 billion broilers last year. This rapid growth, of course, increases demand for feed grains such as maize and soybeans, which bodes well for major suppliers such as Brazil, Argentina, and the US, barring increased political tensions. China is expected to face a food supply shortfall of 130 million tonnes by 2025, so new investments in food production can be expected to continue, especially as urbanisation and rapid industrialisation continues.

Headlines

Europe, Russia, and Central Asia

  • The European Commission has approved several aid schemes to support agriculture in member states that have been severely affected by the COVID-19-related lockdowns implemented all over the union. Lithuanian poultry companies will receive EUR 20 million (ZAR 395 million), which will be distributed to some 25 companies. The Irish beef sector will receive EUR 50 million (ZAR 989 million) while EUR 500 000 (ZAR 10 million) has been allocated to help Cypriot pork producers.
  • Germany reported a 0,6% drop in meat production in the first half of 2020. Despite a 1,4% growth in the first quarter, the poor performance in the second quarter (−2,6%) dragged the numbers down. It should come as no surprise though, given the extended lockdown as well as the scandal surrounding the German meat industry, as several processors were forced to shut down due to COVID-19 outbreaks among staff.
  • Following repeated requests for inspections, which went unanswered, the Russian Federal Service for Veterinary and Phytosanitary Surveillance, Rosselkhoznadzor, banned imports from two Brazilian lysine producers. Russian officials also reported that they are waiting for information from Brazil to monitor compliance with Russian requirements. In response, Brazil’s Secretariat for Plant and Animal Health has agreed to supply all necessary information to Russian officials as soon as possible. The move was criticised by the Russian National Feed Union, who warned of possible shortages in the Russian market. The Russian feed industry is facing a number of challenges after the COVID-19 pandemic. Although supply chains have been restored, feed and premix manufacturers are facing rising costs due to a weakening rouble.
  • Poland has been declared free from avian influenza by the World Organization for Animal Health (OIE). The first outbreak was recorded late last year, with 35 major outbreaks occurring since then. However, it has been three months since the last outbreak and, thus, according to OIE rules, Poland is automatically considered to be free from the disease. Exports to major non-European Union markets was banned during this time, especially Singapore, Japan, and South Africa. With the updated status, pressure will mount on South Africa, among other countries, to allow poultry exports to resume.
  • The Bulgarian feed industry is facing a challenging start to 2020, but there are some positives, as highlighted by the numbers recently released the Bulgarian Food Safety Agency. Total volumes in the first quarter increased by just over 7%, compared to last year, with poultry and ruminant feed growing by 21,7% and 4%, respectively. Poultry feed makes up 50,7% of total fed production, so that is good news, However, the ongoing African swine fever epidemic has severely affected pig feed production. With more than 170 000 animals culled since last year, feed production fell by 15,6%. It was expected that the COVID-19-related restrictions introduced in the second quarter would have a significant effect on feed production but, surprisingly, total feed volume was only down by 0,8%, compared to 2019. Again, it was pig feed that dragged the total growth down into negative territory. An interesting development was the increase in the amount of feed sold into the open market, an increase of about 20%, which seemed to offset a reduction of 26% in feed used in-house by integrators.

The Americas

  • Mexican beef and pork producers have shown remarkable resilience in 2020. Like elsewhere in the world, Mexican agriculture has been impacted by the COVID-19 epidemic and the resultant drop in demand and production, while facing a volatile currency. However, Mexican meat processors seemed to have been much less affected by COVID-19 outbreaks among staff than their North and South American counterparts. Mexican production has continued growing throughout this difficult year, thanks to beef and pork producers exploiting new export opportunities, especially to China. Mexican meat processors are expected to slaughter just over 8 million head of cattle and 20,2 million pigs this year, while the forecast for 2021 is 8,3 million head of cattle and 20,8 million pigs. Pork production grew by 6,5% in 2019 and that steady growth had continued into 2020, despite pork prices falling by more than 30% in recent months. Lower prices boosted local demand as consumers switched from more expensive beef cuts to cheaper pork and chicken alternatives and made Mexican pork more competitive in the international market.
  • For grain producers in the US, 2020 held the promise to make up some lost ground after a very challenging 2019. As the Phase 1 trade deal was signed with China, many hoped that increased exports would push up prices for maize and soybeans, but they have been left disappointed so far. Despite exports to China being up by 144% for the first half of 2020, compared to last year, most Chicago Board of Trade maize futures are down by about 16%, while soybean and wheat futures have declined by 5% and 6%, respectively. With a bumper crop in the fields, a global oversupply of maize, and sluggish local demand for grains, meat, and ethanol thanks to the COVID-19 pandemic, many farmers are facing severe losses, with prices dipping below cost of production. While it seems that smaller, family-run farms are hardest hit, with almost 600 filing for bankruptcy so far this year, an 8% increase from last year, larger commercial operations are expanding and using the opportunity to buy up more land. The plight of farmers has not gone unnoticed and Federal support is forthcoming. The Trump administration is expected to pay out a record USD 33 billion (ZAR 556 billion) in financial support to farmers. But it’s not just grain producers that have been affected. Pork, beef, and dairy farmers have been hard hit by the pandemic too, many being forced to euthanise market-ready animals and dump milk as processors were forced to shut down due to outbreaks among staff. According to the Agricultural Policy Research Institute, farm income is expected to drop by only 3% this year thanks to Federal support programmes, and by up to 12% next year if those support programmes are not extended.
  • It was Ecuadorian shrimp that sparked panic in China and turned the world’s attention to the possibility that coronavirus disease could be spread by food. Up until this point, the official position was that the virus could not be spread by goods and foods. As details emerged of this unexpected turn in events, Chinese officials temporarily rescinded many import permits, while even more exporters voluntarily suspended exports to China, not wanting to risk shipping valuable goods all the way to China just to be destroyed if they tested positive. Ecuador is mainly dependent on oil money (and money sent home by immigrants) and has been hard hit by a slow-down in the global economy. As oil prices plummeted, non-oil exports became much more important, such as shrimp exports, which totalled almost USD 4 billion (ZAR 67 billion) in 2019 with more than half going to China. Exports have resumed in the meantime and, according to officials, more must be done to boost non-oil income.

Middle East and Africa

  • A Cameroonian investor is to invest XAF 9 billion (ZAR 271 million) in a dairy and biogas production plant in the Adamaoua region of the country. The project is expected to create between 200 and 220 jobs. The facility will process milk, yoghurt, and cheese, while also using waste and manure to produce biogas.
  • The Kenya Bureau of Standards has introduced 24 new specifications to improve the quality and safety of animal feed. The specifications were developed to support the growing demand for proteins of animal origin, which has led to intensified livestock production and subsequent use of selected feed grains and fodder seeds and will address the variety specifications, formulations, and terms used in animal feedstuffs as well as testing methods for important quality and safety parameters for oilseed by-products. 

Markets

  • Increasing production costs, rising corn prices, and steadily growing demand are prompting Chinese lysine producers to start lifting prices away from the historical lows that have pushed some into serious financial trouble. As African swine fever (ASF) swept through China, local demand for lysine dropped significantly and, while the rest the world attempted to increase pork production to supply the growing deficit in the Chinese market, lysine makers jostled for export opportunities. Lysine had become a messy, cut-throat business, but the tide is finally beginning to turn and, after almost two years, there seems to be a light at the end of the tunnel (for lysine producer at least). The growing Chinese pig herd is, once again, stimulating demand for feed and this will continue throughout the next 18 months at least, if, as stated earlier, Chinese pork production is to reach pre-ASF levels by the end of 2021. Growing demand for feed has a double impact on amino acid production. Since maize is used in both, demand for feed and lysine drives up demand for and, thus, the cost of maize. Luckily, global maize supplies are expected to be more than sufficient in the foreseeable future and that should temper price increases. However, users should keep an eye on amino acid prices and expect increases in the near future as global supply and demand gradually rebalances after two years of major disruptions.

Corporate headlines

  • Tiger Brands will sell its processed meats business through two separate deals for a combined ZAR 428 million. According to Tiger Brands, the decision was made before the 2018 listeriosis outbreak. Molare Proprietary Limited, one of South Africa’s largest piggery businesses, will buy the abattoir at Olifantsfontein for ZAR 117 million, while the meat processing factories at Germiston, Polokwane, and Pretoria will be acquired by Silver Blade Abattoir Proprietary Limited, a wholly-owned subsidiary of Country Bird Holdings, for ZAR 311 million.
  • Tyson Foods Inc. has been pushing to resume exports to China, who has suspended imports due to coronavirus disease concerns. As part of its COVID-19 monitoring programme, Tyson Foods has created a chief medical officer position and plans to hire nearly 200 nurses and administrative personnel. The programme involves screening employees daily as they arrive at work and testing for COVID-19, including those without symptoms.
  • Inghams Group Limited, Australia and New Zealand’s largest integrated poultry producer, said operations at its two meat processing facilities at Somerville and Thomastown have been impacted by COVID-19 lockdown measures in the state of Victoria, after the Victorian premier announced a six-week long Stage 4 lockdown for meat processing plants in the state in early August. The restrictions do not apply to other assets and facilities in the company’s supply chain, including hatcheries, farms, feed mill, or other logistics operations.
  • Novus International Inc. filed anti-dumping petitions against Adisseo France SAS, Adisseo España, and Sumitomo Corporation/Sumitomo Chemical Company Limited with the US Department of Commerce (DoC) and the United States International Trade Commission (USITC) on methionine from France, Japan, and Spain. Novus estimated that methionine imports into the US from France, Japan, and Spain increased by more than 200% from 2017 to 2019, and by another 29% between the first quarter of 2019 and the first quarter of 2020 at prices substantially lower than domestic supplies. Final determinations are expected by March 2021 from the DoC, and May 2021 from USITC.
  • Minerva S.A., the largest beef exporter in South America, has acquired a slaughter and deboning unit in Colombia, owned by Frigorífico Vijagual S.A. for USD 26 million (ZAR 435 million). The unit, located in the city of Bucaramanga, Santander, has a slaughtering and deboning capacity of 700 heads per day. Colombia has huge potential for beef exports, given its largely untapped cattle herd of 28 million head.
  • Food processor JBS S.A. hired 5 200 additional workers in Brazil, to boost output to key export markets and to minimise the effect of COVID-19 outbreaks on production. This is in addition to 10 000 people that were employed between March and June amid the COVID-19 crisis. JBS has been severely affected by the pandemic, despite efforts to limit the spread of the virus in processing plants. Various plants have been temporarily shut down in the last few months, either voluntarily or by court order, to protect staff.
  • Cargill Inc. announced an investment of USD 15 million (ZAR 251 million) in a new high-pressure hydrogenation plant in India to improve milk productivity for dairy farmers. The Maharashtra facility will manufacture bypass fats that will be marketed under the Carfe brand and will specifically be aimed at the dairy market. The plant will also make specialty industrial waxes and has an annual capacity of 35 000 t.
  • Marfrig Global Foods S.A. has started selling a new line of carbon-neutral beef products from cows sourced from sustainable farms, under the Viva brand, in Brazil. The initiative was developed in partnership with Brazil’s state-run agricultural research agency Embrapa, and only uses beef made from cattle raised on farms where animals’ methane emissions are neutralised by growing forests or agricultural crops. Marfrig plans to produce Viva-brand products from the slaughtering of 300–400 animals per month from a farm called Santa Vergínia Agro, in Mato Grosso do Sul state. Other farms that fit the criteria will be added over time.

Research and technology

  • The United States Department of Agriculture National Institute of Food and Agriculture (USDA-NIFA) has announced a competitive award of USD 10 million (ZAR 168 million) to a project led by Kumar Venkitanarayanan, associate dean of research and graduate education and professor of animal science at the University of Connecticut’s College of Agriculture, Health, and Natural Resources. The USDA-NIFA-funded project is aimed at developing an integrated and sustainable programme for enhancing the viability of antibiotic-restricted broiler production in the poultry industry. The United States produces the most broiler chickens worldwide, topping nine billion birds annually. To maintain such high rates of production, it has been standard to rely on antibiotics to prevent disease, with antimicrobials also promoting faster growth in the birds. However, with concerns surrounding the use of antibiotics, such as the spread of antibiotic resistance, the Food and Drug Administration (FDA) issued a directive to phase out antibiotic growth promoters (AGPs) in poultry production. This poses challenges for the industry, because maintaining high production, while restricting antibiotic use, means bird health can be negatively impacted, production can decrease, and there are also environmental concerns due to higher feed consumption, leading to increased waste generation. Big changes need to happen to maintain production without the use of antibiotics. To address these concerns, Venkitanarayanan developed the project in hopes of creating a sustainable broiler production system by improving bird and human health and through addressing environmental concerns. To meet these goals, an interdisciplinary team of 30 researchers from 13 institutions has been assembled. The team includes experts in microbiology, molecular biology, poultry nutritionists, poultry gut health specialists, animal welfare specialists, agricultural engineers, economists, and sociologists. Since antibiotics will not be used, the researchers will explore new-generation vaccine development to control diseases, the use of novel phytochemicals and probiotics to improve gut health, and new food ingredients, such as insects. This multi-pronged approach is all in the interest in promoting health, preventing disease, and improving feed-conversion efficiencies, while hopefully reducing ammonia from the waste generated. Another strategy within the proposal is in developing monitoring systems and improving living conditions in the buildings that house the birds. Some methods include improved ventilation systems, ways of neutralising ammonia, and other means to improve air quality. To address the human health component, the team will focus on ways to reduce food-borne pathogens transmitted by meat and monitor the spread of antibiotic-resistant genes. Education is a critical element of the project for both consumers and stakeholders. Outreach efforts will be made to inform consumers about the interventions, and also to educate stakeholders on sustainable methods of production. Scientists from other countries that produce large quantities of broilers, India and Mexico, will also be educated on the interventions so they can implement more sustainable production practices as well. The final component of the project is concerned with reducing the environmental toll that the broiler industry creates by addressing waste. Poultry litter (waste produced by chickens and turkey that includes elements like manure, spilled feed, and bedding) not only creates problems for air quality, but the excess ammonia from the material can acidify soil and add too much nitrogen to the ecosystem. Cost/benefit analyses of the project will also be done to measure the impacts on the industry and the environment. The project is scheduled to start in September 2020.
  • The Commonwealth Scientific and Industrial Research Organisation (CSIRO), Australia’s national science agency, announced the formation of a new company to commercialise a livestock feed additive shown to reduce methane emissions in beef and dairy cattle. AGP Sustainable Real Assets-SparkLabs Cultivat8 Joint Venture, CSIRO, Harvest Road, GrainCorp, and Woolworths committed AUS 13 million (ZAR 158 million) to the company, FutureFeed Pty Ltd. The feed additive is made from the seaweed Asparagopsis, which has been shown to reduce methane emissions in livestock by more than 80% in research trials in Australia and the US. The FutureFeed company will develop the full value chain for the feed supplement and expects to see commercial volumes supplied into the Australian beef and dairy market by mid-2021.

Charts

Chinese lysine producers are standing firm and maintaining prices despite slow demand. Most producers are selling at a loss and are thus unwilling to drop prices further. If production costs increase, they will have to push prices up.

Methionine has found its footing, and prices stabilised late in August. There are even signs that slight increases could be on the cards. Prices dropped to uncomfortably low levels where the major producers started to take strain, with all of them reacting almost immediately to limit further price drops. Expect prices to creep upwards in the short term.

Threonine prices have remained stable with a slight uptick by at the end of August, with rising costs preventing any price drops. As with lysine, producers are standing their ground despite sluggish demand.

Valine prices have reached the bottom and are pushing upward again. One major producer has announced a hiatus in production for September and possibly October, depending on the market, and this will have an effect on prices in the foreseeable future.

As with other amino acids, tryptophan prices stabilised and have already started to increase to more sustainable levels. As the Chinese pig herd grows, so too will demand for tryptophan, which should support prices in the longer term.

For more information

contact Heinrich Jansen van Vuuren
heinrich@chemunique.co.za

This report contains information supplied by and compiled from eFeedLink and Feedinfo.
Detailed reports and references are available on request.

Synthetic amino acids

L-Arginine

Synthetic amino acids

L-Isoleucine

Synthetic amino acids

L-Lysine

Synthetic amino acids

L-Tryptophan

Synthetic amino acids

L-Threonine

Synthetic amino acids

L-Methionine

Synthetic amino acids

L-Valine