How to gain control of feed costs in a volatile market

[00:00:59] Welcome, everyone. My name is Nicholai Shchetikhin  , and I have Jim Johnston with me. How are you doing, Jim?  

[00:01:05] I think I’m doing really good. Great to be back. How are you today?  

[00:01:09] I’m good. Good. Exactly. We’re back with the podcast again. And this is already season two after a very successful season one.  

[00:01:18] And we’re really thankful for everyone who joined us on the season as a guest. And also all those people who watched our episodes commented and followed us on social media.  

[00:01:30] Yeah, you know, Nick is such an exciting time as so much has happened since our last podcast in season one, so lots to talk about and lots of guests, hopefully in the season ahead. So today, one of the big areas to show and it’s sort of global debate is about the increasing raw material feed, raw material costs and the volatility around that. And so, you know, there’s a lot of reading material out there. Since about August last year, we’ve seen somewhere between 25, 30 percent increase in the basic raw materials, grains and seed. And I know that from a UK perspective, we’re looking to feed wheat being at a seven year high at the moment. So given that that’s like 70 percent of the cost of producing the chicken, it’s going to have a significant impact here, right?  

[00:02:23] Yeah, exactly. And all this situation with the feed raw material prices put the whole industry all there actually live operation industries into a very tough situation because you need to do a lot of planning. You need to do a lot of preplanning. Also, you need to cut on the costs and do all those things at the same time.  

[00:02:44] So it’s another component to this juggling exercise that we constantly having. And today, I guess we can talk a little bit about what the industry can do in order to help itself to manage the situation and also what kind of tools Mtech can offer to help with that.  

[00:03:07] Yeah, there’s probably three key areas that we need to be talking about the first one being the whole supply chain management. So you imagine that breeders through broilers into processing or breeders and layers that whole integrated supply chain. The second area we want to talk about, really, then it’s about the future requirement for the birds specifically and what the birds need at each of the stages of production. And the third area really is looking at the raw material planning.  

[00:03:40] And that obviously depends on the previous two steps I’ve mentioned. But that’s the three key areas we want to speak about. All right.  

[00:03:46] So let’s just grab each one of them and discuss them in a little bit more detail. So I’ll start with the first one. One, you mentioned supply chain and supply chain planning. So with the situation right now where the demand drastically changing, we really need to practice a lot of different models of planning like push and pull. Planning a pull is the one that goes and plans everything from the demand when we need to plan based on what we need to have as an end product. And that’s not very easy because demand is changing and you need to do all this replanning rather quickly. But also you have a push that you currently having on the ground, whether it’s a breeders or layers. So broilers, you will need to push them through the supply chain regardless. And also you need to make sure that whenever you’re pushing them, you fulfilling the demand. And again, with the changes between food service and retail, many companies had to change a lot of their processes because in many cases and Jim, you know this better than I do, that all operation is tailored to produce specific products. If we talk about broilers, for example, we look at the small bird or Big Bird or medium bird or mix of those. And if your operation is tailored to one particular size of bird, the type of bird you need to produce all the feeding schedules you need to produce vaccination visits, schedules, everything should be tailored to that particular product. But then when suddenly everything changes and demand now needs to be something different. You’ve been growing small birds, but now everybody needs big birds. So you need to not only replant everything, but also restructure whole business.  

[00:05:52] Yeah, absolutely right. You know, that’s got huge consequences for stocking densities, thinning programs, you know, catching and collection for the plant and the dynamic really between the weights of birds that you mentioned. They’re required for food service, which tend to be smaller birds quite often, and then retail slightly larger. So that’s huge implications on the whole supply chain. And you need some help to foresee, calculate rerun forecasts and do some scenario planning to have a look at what’s the impact on your cycle, doing things a different way. Therefore, what’s the impact, the stocking densities and and then also into feed ration requirements, nutrition, raw materials. So there’s a lot of lot on impact in managing that supply chain.  

[00:06:39] Right, and if we talk about the second component, which you mentioned already fit the requirement and this is very, very important and with the prices going up these days, you need to be extremely efficient and accurate on anything you do with the feed, because feed, as we know, and especially, for example, again, I’m using example of the broilers is almost up to 75 percent of the cost of your meat cost. So you’ve got to be very, very careful and accurate. What you’re feeding, what kind of feeding programs you’re following. And also, at the same time, you need to plan in advance because many of those raw materials, especially macro ingredients, you need to maybe import from somewhere and you need to plan that in advance. You need to put a contract in. You need to make sure that you will be able to produce. And again, it involves the whole supply chain planning in the game here because you might order too much feed and then or raw materials and then it can go bad and you cannot really resell it. You cannot really use it or vice versa. You’re planning for lots of birds to produce lots of eggs to produce, but you don’t plan enough raw materials to produce feed you need. So there is a very tiny and very small balance that you need to achieve when you’re planning between your supply and demand again.  

[00:08:18] Yeah, no, you’re right.  

[00:08:19] And you know, the very fact you’re adjusting a dynamic situation, you know, you want to make sure you don’t put too much feed in the bins on that farm. So you reduce the amount of feed that’s going to be hauled back and are taken off the farm and moved because that’s a cost. The other thing, too, is giving your fed mills sufficient warning of changes so they can plan their shifts and the production cycles and they reduce the amount of inefficiency and change in in the machines in the set up to do different diets. So that’s quite important to give them enough forewarning of any changes so they can plan their production shifts to optimize what’s happening in the efficiencies around the feed mill. And the key thing, too, is making sure that you are able to actually deliver the feed, the nutritionist wants you to deliver. So the accuracy of each of the raw materials included in the diet is important. So you do get the efficient nutrition to the birds at the right age and you get the right performance. So all of that is quite critical in that second area of importance.  

[00:09:29] Yeah, and also you mentioned nutrients for the feed and we know that some of the federation’s cost much more than the others. So it’s very important to follow the right and strict feeding schedule and feeding program so that you’re not only achieving the right weight with good FCR, but also you are growing birds economically and effectively. Right. And talking about the feed and raw materials. The third point that you mentioned at the beginning, raw material planning. And again, it depends on all the previous steps we take. So the better we plan our supply chain, the better we plan our feed requirements, the more accurately we can plan our raw material. Because raw material is very long range planning. You need to take into account all of your future placements, all of your future feed requirements, breaking down by feed formula and by ingredients so that you can put the contract in and make sure that the feed will be delivered in time. And also you need to make sure that you have enough silo capacity or storage capacity to store all those micro and macro ingredients so they will not get expired.  

[00:10:52] Yeah, that’s very true and some countries around the world, you know, they need much longer lead times for order and procurement, much more inventory. You know, if you look at Saudi, for example, some of the companies will stock six months’ worth of soil and store at the female. If you look at New Zealand, it requires significant lead times to get raw materials to arrive there. So that whole process needs to be planned in detail. And, of course, the more accurate you can plan and forecast your requirement, the better chances for your procurement team to kind of lock down good competitive pricing and good quality raw materials.   

[00:11:34] Exactly. And the good news is that we talk about MTech. There are solutions to help with all of those things, with supply chain planning to make sure that you have pull and push models to optimize your supply chain. Also, all the planning for free deliveries and field requirements and of course, material resource planning. But we all know that in live operations feed, and planning raw materials, is not the only thing that you need to be worried about. There are always other components in that mix.   

[00:12:13] Yeah, there’s so many other areas to think about, isn’t there?  

[00:12:16] I mean, nutritionist making sure he’s looking at and reviewing the data, the performance data from the field, the results of the broilers, the breeders, the layers, the turkeys, whatever, and tuning that diet, tuning the nutrition into what you require that will optimize the performance and balance, you know, cost of production and various nutritional densities to balance that off against the market and try and optimize the margins. There’s a lot to be done around that, and that requires good visibility and performance data.  

[00:12:49] Yeah, so in this, like, optimization that you talking about in terms of nutrition, I already previously mentioned this a little bit, that it is important to follow the feeding schedule that supposed to be optimized. And, of course, it’s supposed to be followed because if growers or farmers or somebody start ordering more cost, ineffective feeds that are not required at that age of the birds, so, for example, the broiler grower keeps on ordering pre starter or start that there is more, of course, you know better for performance because it has more nutrients and everything, but it’s also very expensive. So the flock cost goes up when your FCR goes down. So there is a balance over there as well.   

[00:13:42] Yeah, there absolutely is that you know, that’s a very key issue and something that’s controllable if you have a system that gives the visibility to it. The other thing, of course, is managing the birds and getting the technical performance from the birds that’s optimized in your conditions and with your feed, buildings, equipment and management capability. So it’s about optimizing performance and the visibility on all of that so that we get good technical management of the birds on the ground. We get good feed and good nutrition and the right diets in front of them really to try and minimize the impact or feed costs across your production cycle.  

[00:14:22] And you’re saying that the flock management is super important, such as traceability of that flock, because you need to know where the flock is coming from, all the parent details, all the feed that’s being consumed, all the materials that have been used for that flock, such as veterinarian, the medication material. So that’s a lot of traceability that should be happening throughout the production, both for actual data and planning. And this is what customers value in modern production that they can easily trace and track everything that’s happened to the product they have at the shelf. But we’ll talk about traceability a little bit more in our next episode. And I guess for today, we can kind of wrap up.  

[00:15:16] Yeah, I think that’s really cool, Nick. I mean, I look forward to talking traceability to another important subject. And, you know, I think the key thing is the key message is MTech software is here to help.  

[00:15:27] It’s here to do specific issues across that supply chain and help and optimize. All right.  

[00:15:33] And we’ll see you in the next episode. And for now, please subscribe. Follow us on social media. We are on Instagram, on LinkedIn and on Twitter. See in the next episode connect. Thank you.  

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