Ingredients Reimagined

By PETER SCHOTT and RANDY SCHWALKE*

GROWING up on a small-grain farm in North Dakota, my family’s livelihood depended on corn and soybeans. We worried about bushels, shrink, test weight and other metrics by crop. After dropping off grains at the grain elevator, I didn’t give much thought to their destination or use. I was off to haul the next load or clean a grain bin — another fun hobby in July.

I’ve had the privilege of working in the feed industry for more than 10 years. Time and experience have given me a deeper appreciation for these crops and their use. I often say that effective change has three key components: people, processes and technology. We often focus on technology without considering if changes can be made with people or processes.

Most Feedstuffs readers live and breathe feed and animal production. Margins are critical, and the industry is always looking for new ways to add value or reduce costs. I invite you to take a fresh look at the life cycle of these commodities, from production to purchase to consumption. With the right mindset and tools, we can rethink the value of bulk feed ingredients.

I recently had a chance to catch up with two industry leaders who are making bold moves in this space.

The first was Matthew Clark, a self-described “poultry farmer who has invaded the formulation and trading space to optimize growing chickens and improve egg production.” With 35 years in the industry, his top two tools to lower the cost of delivered nutrients to his birds are the right soybean meal and the right corn. Clark resides in Kuala Lumpur, Malaysia. He has spent most of his career in that region working as a farmer, nutritionist and operations control in the poultry industry.

The other was Gordon Denny, general manager of Gordon Denny LLC, a consulting corporation specializing in the production, marketing and processing aspects of the soybean and grain industries. He spent half of his career as a soybean processing plant manager and the other half as a commodity trader/soybean buyer.

Aligning values

It is clear that many opportunities exist to improve the supply chain for bulk commodities. There are many people and organizations involved, each with unique needs and goals. This system requires a foundation of trust, respect and communication.

For Denny, this is a key issue for change. “Companies are just like people,” he said. “If the individual value chain members perceive its partners as someone they can trust and respect, communication and the search for common goals can begin.”

Organizations should align goals and outcomes to be mutually beneficial whenever possible. Denny knows this won’t be easy.

“There are multiple reasons for dissimilar goals in the soybean value chain,” he said. “Each entity has a goal that is contrary to the next link in the chain. Buyers want the lowest price. Sellers want the highest price. Processors want to meet minimal quality standards at the lowest cost, and nutritionists want maximum value with the highest quality possible… Links often view each other as more of a competitor than a necessary step in the value process.”

It is also critical to align values within an organization. Clark has seen this firsthand with purchasing and formulation departments. “Much of the problem is caused by traditional measures in the trade, like crude protein being confused with nutritional value,” he explained. “There is a large amount of data involved that has to be mutated to be very clear to purchasing to enable decision-making. Often, this flow of data is not as clear or as fast as it should be ideally.”

In Clark’s experience, these outcomes should center on both departments working on “the ingredient selection effect on lowering feed cost and its direct relation to profitability while delivering consistent nutrition.”

Consistency matters

With a foundation of trust, respect and communication, consistency should be sought. Consistency is a valuable component that benefits everyone involved, yet both Clark and Denny see that it is seldom addressed.

Clark noted that “it gets discussed a lot with wailing and gnashing of teeth but no convergence on an action plan.”

Inconsistent ingredient quality has created a large opportunity in the industry. As an ingredient buyer, Clark knows that not all soybeans and soybean meals are equal.

He recollected, “In livestock production in the past, say 10 years ago, we could receive (soybean meal), and then we could analyze the effect in our livestock. Now, with data collection and distribution becoming a real-time reality, we can build the networks to enable choices of supplier. We are beginning to link active (quality control) systems in progressive suppliers to active value-based formulation systems in discerning customers. This link is showing the often missing value in the supply chain.”

What can be done?

With the right foundation and an eye on consistency, technology can drive change. Clark is seeing this more and more in his region.

“I usually find that suppliers and consumers are keen to close the gap in information between their operations,” he said. “This is often limited by the availability of ‘trusted data.’ Openness of data is a key first step to partnership.

Continuity of data ensures the viability of supplier/consumer relations.

“Once the principle of data sharing to highlight common economic ground is in place, then volume and timeliness become operational issues,” he added. “With web-based systems, real-time data collection and automatic sampling, both buyer and seller managers can see the operational parameters, enabling joint effort on key metrics to benefit both parties. Technology enables this process to be practical on a global level, in line with the global nature of grain trading.”

Clark continued, “As mentioned, this is very much a data problem. Making the essential data available to purchasing in a commercially clear way is key to enhancing the process. We need a platform that combines the elements of the technical and commercial aspects of formulation with clarity for each data client — separating function clearly and minimizing the scope for data modification that might disrupt the main formulation process. Very likely, the ideal platform for the purchasing system would use selected data from the formulation program to maximize speed and minimize decision-making time. Purchasing platforms can be presented as an accurate extension of a company formulation platform.

Industry bridging gaps

Where do we start? Groups like the U.S. Soybean Export Council (USSEC) are investing time and money in this process. The main goals are to build preference and demand for U.S. soy by developing and maintaining relationships through trade and technical services and taking key steps to ensure market access.

I saw this firsthand recently at USSEC’s Feed Technology & Nutrition Conference in Phuket, Thailand. Sitting in a room together were processors, nutritionists and farmers from across the globe.

USSEC’s 2018 annual conference brought together more than 250 participants from 58 countries to Omaha, Neb. The represented countries collectively purchase 66.657 million metric tons of whole soybeans, soybean meal and soybean oil, or 94.6% of total U.S. soy exports. Teams participated in a variety of activities that provided international trade teams and suppliers’ buyers/sellers with an opportunity to forge personal relationships. While in the U.S., teams from across the globe toured farms in several states.

The benefits of similar industry partnerships have been far-reaching. Denny said he appreciates the efforts of the United Soybean Board and recognizes that its primary goal is for all links in the value chain to improve margins and profits.

All about the farmer

At the end of the day, it boils down to simply connecting farmers. Bring grain farmers together with animal producers so they can learn from each other.

“The starting point is for one farmer to meet another,” Clark said. “It sounds too simple, but this is precisely how an information exchange platform can operate. As a grain consumer and traveler, I often meet U.S. farmers and see their products on farms. The corn in the midwestern U.S. is the highest quality available anywhere in the world. I would like to buy that grain. The first step in transformation is to look at the value of the different commodities between producer and end user. Then, evolve the logistics around the value, not the value around existing logistics and distribution. Value first; systems second. I think we all need to go back to basics on the relationship between an American farmer and his counterpart in producing hogs or chickens anywhere in the world.”

Aristotle once said, “The more you know, the more you know you don’t know.” It might have meant something different in Greek, or perhaps was an offhand comment he didn’t plan on being recorded for the ages, but there is truth in the statement.

Farmers and producers must continue to have opportunities to learn from each other. Data tools are being made available to\ build trust and reward consistency between teams. We believe these ideals will be the foundation of mutual reward for
the entire supply/value chain.

© 2018 Feedstuffs. Reprinted with permission from Vol. 90, No. 07, July 2, 2018

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