AMINO REPORT

July 2020

Indication prices

(average cost and freight to Durban)

L-Lysine HCI

ZAR 17,22

L-Lysine sulphate

ZAR 11,57

L-Methionine

ZAR 39,46

L-Threonine

ZAR 19,11

L-Tryptophan

ZAR 125,99

L-Valine

ZAR 74,01

L-Arginine

ZAR 111,80

Headlines

CHINA and SOUTH EAST ASIA

  • Heavy rains and flooding over large parts of southern China have resurrected the threat posed by African swine fever (ASF), and thwarted efforts to restock many farms decimated by the disease over the past 24 months. It is not clear exactly why outbreaks have increased since the rains and flooding started, and what the source of infections are. One theory is that the carcasses of previously buried animals are acting as a reservoir for the virus and the heavy rains are washing the virus into rivers and underground water sources, thereby spreading the disease. Whatever it may be, the resurgence of ASF cases is tightly correlated with the heavy rains. China’s sow herd fell by 3,87% in June, the first decrease in months. Small and medium farms are heaviest hit, with biosecurity measures simply not able to cope with the rain. In response to the crisis, the Chinese government has allocated CNY 330 million (ZAR 800 million) to relief efforts, mainly aimed at helping farmers to resume production after the waters recede. China’s pig industry is on a major restocking drive after almost half the herd was killed by ASF between mid-2018 and the end of 2019. Thousands of breeding animals are being imported and large farm construction programmes by integrated commercial producers are spearheading the initiative. The latest outbreaks of ASF are threatening this recovery. The national breeding sow herd is reported to be up by 29% compared to September 2019, with some provinces reportedly as high as 85% of the 2017 levels. Subsequently, animal feed production has also increased. June pig feed production increased by 9% compared to a year ago, while layer, broiler, and ruminant feed output rose by 14%, 10,4%, and 10% respectively.
  • A newly imposed lockdown in Xinjiang province, where some of the largest amino acid manufacturers have production facilities, has raised concerns of another round of disruptions. Both Meihua Group and Fufeng Group operate plants that produce lysine, threonine, tryptophan, and valine. Although disruptions in production and logistics have not affected prices yet, it could happen in the near future.
  • Chinese concerns for a second wave of COVID-19 infections are driving the government to implement strict regulations aimed at preventing the reintroduction of the virus from abroad that has caused severe disruptions in the country since it emerged in late 2019, and dumped the rest of the world into chaos as the pandemic went global and disrupted supply chains. As discussed in June 2020 Amino Report, Chinese customs officials have introduced a controversial certification system that requires all imported goods to be certified as COVID-19-free, despite all imports being tested anyway. Some exporters, specifically in North and South America have complained about the new regulations, arguing that there is very little evidence that the virus is transmitted by either food or non-food items. Outbreaks at various processing plants around the globe have resulted in many facing bans on their products. Twelve processing plants have been banned from exporting to China in June alone, and most are operated by the largest processors in the America’s and Europe. Up until late June, meat imports have been reaching record monthly highs, more than double those of previous years, but as testing of all imports commenced in July, and strict certification regulations of imports starts to bite, imports are expected to reduce in the coming months. Preliminary reports already indicate a substantial drop in imports, and of course a resultant increase in prices. One importer claimed that import costs are up by 15% since June due to port delays connected to mandatory testing. Pork imports alone from January to June 2020 are up by 142% compared to 2019, at just over two million tonnes. June specifically accounted for 400 000 t, excluding offal and organ meat.
  • In the Phase 1 trade deal between the Peoples Republic of China and the United States (US), China is committed to buy farm goods from the US to the value of USD 36,5 billion (ZAR  640 million), or 50% more than 2017 levels. A record Chinese shopping spree of US farm goods is needed to reach that goal since total purchases from January to May were sitting at USD 6 billion (ZAR 105 billion. In recent weeks, Chinese purchases have picked up, starting slowly in early July and picking up speed as the month progressed. Since soybeans typically make up about half of all Chinese purchases, some serious soybean deals are expected. China needs to buy USD 2,8 billion (ZAR 49 billion) worth of beans each month to reach their target if beans are to make up half of the trade deal target. In recent weeks Chinese buyers booked more than USD 2,5 billion (ZAR 43,9 billion) worth of beans, and it is expected to increase even more, especially in the last three months of the year as Brazil’s export supplies dries up. Brazil is still China’s top supplier of beans, with imports in June reported at 10,5 million tonnes. Total soybean imports for June reached 11,16 million tonnes, with only 267 553 t from the US. Of major concern is the lingering impact of ASF on pork production and the resultant impact on soya meal demand. Under normal circumstances it would already have been a stretch. Maize’s potential to contribute is limited with purchases at USD 500 million, and most import quotas nearly filled, while China’s own maize harvest season starts in September. Meat imports could still contribute if processors can adhere to the strict COVID-19 guarantees sought by the Chinese state. Although meat imports are normally small compared to soybeans, this is not a normal year.
  • A rare positive to come out of the COVID-19 pandemic is changing the way Indian rice farmers are cultivating the grain. India is the world’s second largest producer of rice, after China, and the largest exporter. For generations farmers flooded their fields in June and hired armies of migrant labourers to transplant thousands of seedlings from nurseries to the flooded fields. But with most labourers not able to leave their homes due to restrictions on movement, farmers have been forced to utilise more modern methods by sowing rice seeds directly onto moist fields, known as the direct seeded rice (DSR) method. The DSR method saves between 50%–60% on water, as well as on labour costs. However, most farmers say they will assess the method only on production after the season and then make a final decision to stay with the new or revert back to old. If farmers stick to the DSR, thousands of labourers will be left without jobs next year, however in a water-scarce country like India, the long-term benefits cannot be ignored.

Headlines

Europe, Russia, and Central Asia

  • Repeated outbreaks at German meat processing facilities have turned the public’s and the government’s attention to certain labour practices in the German meat industry. After a major outbreak of COVID-19 cases at the Tönnies facility in Guetersloh, North Rhine-Westphalia, the facility could not provide authorities with the addresses for some of the workers because they were supplied by a subcontractor who hired them from another subcontractor. Further investigation found that some workers were subcontracted up to three times. Most subcontracted workers are immigrant labourers, and as reported earlier in the year, mostly from Romania. This prompted harsh words from the German agricultural minister, Julia Kloeckner, who vowed to introduce a spate of new regulations to protect labourers and farmers from predatory practices by meat processors to keep meat prices as low as possible, while stressing that cheap processed meat is unacceptable, despite the fact that many households, who are barely making ends meet as it is, are dependent on cheaper processed meat. One of the proposed measures is the introduction of an animal welfare levy. However, many farmers are supportive of the minister and it seems the industry has also vowed to clean up its act. Most have already started to directly employ previously subcontracted staff. The Tönnies-owned plant finally reopened in late July with strict protocols in place. The plant processes 14% of all German-produced pigs, and the closure caused prices to drop as animals backed up on farms. Since the final reopening, prices have stabilised and the plant is gradually increasing production.
  • While Germany is adding another section of a border fence to the already substantial barriers on the German–Polish border to curb the possible spread of ASF from Poland by wild boar, Poland recorded 30 new cases of ASF by mid-July. In addition, Poland has confirmed more than 2 800 cases of ASF in wild boar populations to date. Wild boar populations have been acting as a reservoir for ASF in Europe. Although outbreaks are usually isolated, the threat of a severe outbreak remains, as recently illustrated in Romania, which has been especially hard hit in recent months with thousands of animals being culled to prevent the uncontrolled spread of the deadly disease.
  • Kazakhstan has announced a number of livestock projects in recent months to boost its animal production capacity, both in terms of animal husbandry and processing. The Sustainable Livestock Development Program has secured valuable funding from the World Bank in the form of a USD 500 million (ZAR 8,8 billion) loan. The aim of the programme is to develop Kazakhstan into a leading supplier of premium quality and sustainable beef to the world market by improving veterinary services and traceability, while connecting more than 20 000 small and medium farmers to the export value chain. Kazakhstan hopes to triple the value of beef exports over the next five years.
  • Spanish authorities ordered a mink farm to cull 93 000 animals after 80% of animal samples tested positive for COVID-19. The farm in the village of La Puebla de Valverde fell under suspicion after the wife of one of the workers tested positive. Several workers have subsequently also tested positive. Mink on farms in the Netherlands and Denmark have also tested positive in recent months, with thousands of animals being culled to prevent animal-to-human transmissions. Although most animals do not show any symptoms, they do act as a reservoir for the virus. Many other mammal species have also been shown to be susceptible to infections.

The Americas

  • As American meat processors were forced to close processing plants to limit the spread of COVID-19 among workers, ranchers saw a substantial decrease in livestock prices, while panic buying by consumers and short supplies drove retail prices higher. The difference between livestock prices and wholesale beef prices reached a record high, prompting cattle ranchers to ask serious questions, especially since it was the second time in a few months to have happened. The previous time was after a fire at a Tyson’s plant in Kansas stopped production at a facility that processes almost 5% of the United States’ beef. An investigation by the Department of Justice (DOJ) and the United States Department of Agriculture (USDA) into possible anticompetitive conduct by the four major meatpackers is still ongoing. However, the USDA has, in the meantime, released a report which suggests broader reporting requirements for meatpackers to prevent similar occurrences in the future. Tyson Foods Inc., JBS SA. Inc., Cargill Inc., and National Beef Packing Co. control 73% of the beef processing industry in the United States (US).
  • The COVID-19 outbreak has taken a heavy toll on processing plant workers because of the nature of the work and the fact that physical distancing is all but impossible to maintain. In April and May, many thousands of workers tested positive, forcing many plants to close for extended periods. However, meat processors have spent hundreds of millions of dollars on improving health and safety conditions and introduced new health protocols, which seem to have worked. Although there are still many positive test results, it is in line with the general population on a per capita basis. Despite the shutdowns and millions spent, some politicians are still blaming the meat processors for putting their employees in harm’s way to maintain production, and for the domestic shortfall in production due to shutdowns. As one chief executive officer exclaimed, “For better or worse, our plants are what they are. Four walls, engineered design, efficient use of space, etc. Spread out? Okay. Where?”
  • Brazilian meat processors have also been hard hit by the COVID-19 pandemic. Industry giants like JBS S.A., BRF S.A. and Minerva S.A. are continually closing and opening plants as infections break out among plant workers. There are ongoing court battles between labour prosecutors, unions, and processors to improve the health and safety conditions of workers, or to force the closure or reopening of plants. It has become a messy business in Brazil. Labour prosecutors are investigating dozens of outbreaks across most states and claim that despite federal and state health and safety guidelines, some plants are still not adhering to safety protocols. Lobby group Associação Brasileira de Proteína Animal (APBA, or Brazilian Association of Animal Protein) disputes data released by labour prosecutors on outbreaks in plants and says the meat industry is taking precautions and that safety protocols to combat the spread of infections in processing plants has been implemented since 12 March. According to labour prosecutors, meat processing plant workers are three times more likely to contract COVID-19 than the general population. Differences in state and federal guidelines are also adding to the confusion. Recently, reports emerged that the Santa Catarina state may scrap additional regulations to protect factory workers. The reports have been criticised by labour prosecutors but welcomed by the ABPA. The regulations were enacted in May and stated that pregnant and indigenous workers must be removed from plants, while a strict 1,5 m minimum distance between workers must be enforced. The situation is starting to have an impact on exports, although not significant in numbers yet, as several plants have been banned from exporting meat products to China, which is Brazil’s largest export market. Currently there are 102 Brazilian processing plants certified to export to China. In the last month eight have been banned from exporting to China, a small number, but an important message to Brazilian meat processors; they need to get a grip on curbing COVID-19 outbreaks. But despite the difficulties, Brazilian processors are still bullish about exports and expect the growth to continue. According to ABPA, pork exports are expected to increase by 33% to one million tonnes and chicken exports are expected to grow by a more modest 5% to 4,45 million tonnes. Animal feed and premix companies share the positive sentiment, with some estimating production growth of between 4% and 12% for 2020.
  • Argentina’s food quality and safety body, Servicio Nacional de Sanidad y Calidad Agroalimentaria (SENASA), suspended exports from eight beef processing plants to China after requests for commercial safety guarantees related to COVID-19 were received from China. The suspensions were put in place in mid-July for a period of 7–10 days. Argentina has a total of 96 processing plants with export clearance, which have already exported a total 328 170 t of beef since January, with three-quarters destined for China. In contrast to beef, Argentine pork exports are negligible. In 2019, Argentina produced 630 000 t of pork, of which only 34 000 t were exported. However, a recent agreement between the Argentine and Chinese governments could pave the way for increased pork production and exports in future. The memorandum of understanding includes cooperation in health, scientific, and technological research. Chinese integrators have been encouraged by the Chinese government to diversify production facilities abroad to prevent a similar crisis such as the recent African swine fever outbreak. Although it is early days still, Argentina could become a major pork exporter in the future.

Middle East and Africa

  • Ethiopian poultry farmers have been forced to destroy millions of day-old chicks and eggs as COVID-19-related restrictions forced the tourism industry to shut down. Major hotel groups have either reduced or completely stopped operations, decimating demand almost overnight. Ethiopia’s largest poultry supplier was forced to kill more than 600 000 chicks during May and June alone. The knock-on effect is substantial as thousands of people are either directly or indirectly dependent on poultry farming. Ethiopia had less than 18 700 confirmed COVID-19 cases at the end of July, with 310 deaths.

Markets

  • According to a recent report released by the Food and Agriculture Organization of the United Nations (FAO), the COVID-19-induced reduction in global food demand and ample supply could cause food prices to tumble periodically over the next decade, but a gradual return to relative stability is also forecast, as uncertainty around the spread of the virus and its impact on global food supplies peters out. It’s not only the COVID-19 pandemic that will impact food prices, but also the recovery of Chinese pork production. This should see a gradual decrease in global meat prices. Higher yields and greater productivity are also seen to help supply keep up with greater demand due to population growth.
  • Frozen pork inventories from the United States (US) fell for the second month in a row, despite increase production in June. Compared to last year, June frozen pork stocks are 25% lower; however the drop was the smallest for a monthly drop for June since 1970, a sign that production in the US is picking up steam. The increase in production is largely contributed to higher carcass weights as many farmers have been forced to hold on to hogs for longer. Exports to China also jumped by 135%, compared to June 2019, and this is expected to continue as China pushes to meet its obligations under the US–China Phase 1 trade deal.

Corporate headlines

  • Meat processors and their workers have been hard hit by the COVID-19 pandemic. Meat processing has always been a tough and dangerous job, even before the outbreak of COVID-19 forced shutdowns around the world. It should, thus, come as no surprise that meat processors have been investing in alternative technologies to automate many functions for some time. Tyson Foods Inc. employs 122 000 people to process roughly 39 million chickens every week. They have invested more than USD 500 million (ZAR 8,8 billion) over the past three years and have brought together a group of engineers and designers to develop robotic solutions. It seems developing robotic butchers has proved to be a challenge, but not impossible. Robots simply cannot yet match a human’s ability to disassemble animal carcasses with subtle differences in size and shape, especially cattle and hogs. While some robots, such as automated back saw cutters that split hog carcasses along the spinal column, labour alongside humans in plants, the finer cutting, such as trimming fat, for now largely remains in the hands of human workers. Tyson’s efforts have started to pay off with the development of a waterjet cutting system capable of carving up chicken breasts more precisely than humans can. Many Tyson chicken plants are now using the system to develop new products that they could not make using human labour. Certainly after the pandemic efforts will intensify to automate meat processing. This should inevitably lead to unemployment, but according to some company executives it will actually have very little impact, as labour shortages and high staff turnovers are ever-present problems in the industry. The meat packing industry in the United States (US) employs about 585 000 people, with an annual staff turnover of between 40% and 70%, compared to 31% for other manufacturing industries. Automation could alleviate some of the chronic labour shortages faced by the industry, and actually increase staff retention by making some jobs less strenuous. Although challenging, the first robotic butcher may appear quite soon.
  • JBS S.A. has invested USD 19,3 million (ZAR 339 million) in health and safety measures, which includes hiring health professionals and expanding its bus fleet to safely transport workers. It also includes 180 000 face shields. JBS employs 130 000 people at 135 plants across Brazil. The company placed all high-risk employees on leave, which includes pregnant women, people over 60, and indigenous people.
  • Royal DSM has partnered with French agri-food group Avril to produce a canola-based food protein source. The joint venture, Olatein, aims to enter the market by 2022 with a product called CanolaPro, which will be made from non-genetically modified organism rapeseed meal. The product is specifically aimed at the plant protein-based meat and milk alternatives market.
  • Beyond Meat Inc. will start selling plant-based burgers and sausages at Brazilian high-end supermarket chain St Marché in Sao Paulo, just a few weeks after launching in mainland China’s retail market through Alibaba Group’s Freshippo markets.
  • Novus International has filed antidumping petitions with the US Department of Commerce and the US International Trade Commission, requesting the agencies to investigate whether imports of methionine from Spain, France, and Japan into the US is consistent with the World Trade Organization’s (WTO) anti-dumping agreement. According to Novus, imports from Spain, France, and Japan increased by more than 200% from 2017 to 2019, and another 29% between the first quarter of 2019 and the first quarter of 2020, and are also priced substantially lower than domestically produced product. The preliminary outcome of the investigation is expected within the next few months.
  • The China Oil and Food Corporation (COFCO) has temporarily suspended operations at its Timbues grains plant after 12 employees tested positive for COVID-19. The operations at the plant, which employs 350 workers and has an annual grains and oilseeds capacity of 6,5 million tonnes, will resume before mid-August.
  • One employee at Bunge’s facility in Puerto General San Martin tested positive for COVID-19 but others who had been in contact with the person have since been isolated and tested. Although the tests were negative, unions forced operations to a standstill. It’s unclear when operations will restart, but according to Bunge Argentina, soybean deliveries will be redirected to other facilities in the meantime.

Research and technology

  • A recent study at Kansas State University’s College of Veterinary Medicine evaluated if feed additives could mitigate the risk of spreading African swine fever (ASF) through feed. A number of feed additives are available to control bacterial contamination in feed, but none have been tested for efficacy against viruses, and especially ASF. Although the results where promising, with both compounds tested showing some efficacy in reducing viral infectivity, proper biosecurity and raw material management remains key to preventing the spread of ASF. In the absence of a vaccine and effective treatment, this is just one more component that could contribute to controlling the spread of this devastating disease.
  • A recent study by the Pirbright Institute has found that mutations in the H7N9 bird flu virus increase its replication rate and stability in avian cells but reduces its ability to infect human cells. The results show that outbreaks in birds caused by strains with these mutations could pose a lower risk to human health, while remaining a significant threat to the poultry industry. Although the H7N9 low-pathogenicity avian influenza (LPAI) virus usually only infects birds, the first human infection was recorded in 2013 in China. Since then, there have been over 1 500 confirmed human infections with a 40% fatality rate. Further evolution of the H7N9 virus gave rise to a high-pathogenicity avian influenza (HPAI) strain that could cause 100% mortality in chickens. Since 2017, the Chinese government has been enforcing a wide-scale vaccination programme in chickens, which drove down cases of both low and high pathogenicity strains. A previous study identified three mutations in avian influenza H7N9 viruses that enabled them to overcome immunity generated by vaccines. The mutations altered a protein on the outside of the virus called haemagglutinin (HA), which binds to host cell receptors and allows the virus to enter and cause infection. In a more recent study, the same mutations was found in H7N9 viruses isolated from the field in 2019, which most likely emerged in birds that had either been immunised or naturally infected. Analysis of the viruses demonstrated that strains with these mutations have significantly higher replication rates in both chicken cell cultures and chick embryos. They also displayed greater acid and thermal stability, which increased infectivity. However, the mutations influenced which animal cells the strain could infect. Their HA proteins could still bind to the receptors of bird cells, but they lost their affinity for human cell receptors. These findings show that in evolving to escape the chicken immune system, the mutated H7N9 viruses have reduced their risk to human health, while increasing the threat they pose to poultry.

Charts

Lysine prices have kept falling throughout July, but seem to have found some support over the past two weeks. Chinese overcapacity and slow demand are still affecting the global market. One Chinese supplier has been cleared to resume exports to the European Union (EU) under the new registration regulations and this might have given some support to the market. Production costs are still high and are limiting any downward scope.

Methionine prices have kept sliding throughout July and have reached the near record lows seen in late 2019 and early 2020. Although there is still some room to drop further, it is doubtful if any of the main market players want to go there again.

Prices of threonine have stabilised in July, mainly due to low profitability and slow demand. Most buyers have stocked up on fairly cheap threonine, but, despite the sluggish demand, producers are unwilling to drop prices further.

Valine prices have kept on dropping and are close to the lows seen previously. This will put profitability under pressure and prompt some Chinese manufacturers to consider switching production to threonine; however, threonine is not necessarily very lucrative at the moment either.

The decline in tryptophan prices continued throughout July, but seem to have stabilised at the end of the month. Tighter supplies and higher demand could turn the momentum around and support prices to higher levels.

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-Isoleucine

Synthetic amino acids

L-Valine

Synthetic amino acids

L-Tryptophan

Synthetic amino acids

L-Methionine

Synthetic amino acids

L-Lysine

Synthetic amino acids

L-Arginine

Synthetic amino acids

L-Threonine