Understanding Market Volatility in the prices of feed ingredients: A Copper Example

In this insightful episode of Coffee in the Barn, we delve into the complexities of market volatility in the animal nutrition industry, with our special guest Louis Li, Marketing Director at Beans Nutrition. Louis and hosts Casey Bradley and Aryeri Bardales discuss the growing challenges and opportunities in the feed ingredient sector, particularly in the amino acid and copper markets, both essential to swine and poultry nutrition. As we approach #porktober24, these topics are especially relevant to pork producers navigating feed price fluctuations. 

As global markets become more interconnected, agricultural industries must face a range of unpredictable factors that can significantly affect feed ingredient pricing. Louis walks us through the specifics of these changes, including the volatility in the copper market impacted by drivers such as geopolitical events, technological shifts (e.g. electric vehicles), and the supply-demand balance for copper in industrial applications. 

Listeners will gain a unique perspective on the fluctuating nature of essential feed ingredients like lysine and threonine, as well as the importance of logistics in ensuring a steady supply to farmers at competitive prices. Beans Nutrition’s approach to leveraging amino acid distribution as a vehicle to offer other technical products like tri-basic copper chloride showcases their strategy of creating value-added solutions in the feed industry. 

Transcript

Louis
0:00:00
So my name is Louis, working for a company called Beans Nutrition. We are focusing on the solution providing for one-stop shop for ingredients, particularly for animal nutrition. Core business for our operation is amino acids, which we are able to move up to tens of thousands metric ton per year, even it's only our second year in this market. On top of that, we are recently introducing

Louis
0:00:31
TriBasic Copper Chloride as the exclusive dealer for a manufacturer called DeBond. So I suppose this is why we're having this episode with Casey here to discuss, you know, the opportunities that demand the market and the potential opportunities,

Louis
0:00:49
and of course challenges this market and slash for this particular product.

Casey
0:00:53
Well thank you Louis for that quick introduction and for our listening audience we're going to be changing it up you're going to hear another new voice on the Real P3 and that is my awesome graduate student that I brought over on a grant with Dr. Crystal Lovac finishing up her master's at South Dakota State University in swine nutrition, Arjery Bardell. And in another few years we'll be able to call her doctor as well, but we're still working through that process. So welcome everybody. And I'll let Arjery kind of kick off some of the questions as we get in and talk about

Casey
0:01:31
copper markets and pricing and really how that influences animal nutrition.

Aryeri
0:01:36
it. Sure. All right. Hi, nice to meet you everyone and nice to meet you Dr. Lewis. It's a pleasure to be here and well as Dr. Bradley said my name is Argeri. I'm currently a master student at SDSU and also work in with Dr. Casey Bradley. And I had a lot of questions for you Dr. Lewis. Hopefully all and well, can we start and can you introduce or give us a bit of an overview in Beans Nutrition and explain your role in the company?

Louis
0:02:12
Yeah, okay, sure.

Louis
0:02:14
I mean, Beans Nutrition is a very young startup company in America. We registered in year 2021, the actual operation kicked off probably early 2022. We have a warehouse in the Midwest and another one on the East Coast. We have a smaller warehouse in Quebec, Canada as well. As I mentioned before, the core business for us is the distribution of amino acids, lysine, serine, and all the other boring stuff. Even if it's our second or third year operation-wise in this particular market, but we are not new. We have been doing exactly the same thing for the last 25 years.

Louis
0:03:00
So our parent company back in China is probably the second largest privately owned distributor for amino acids domestically in China. got all these very close relationships with all the manufacturers, the access to the market firsthand, and obviously the knowledge accumulated not just for amino acid, but the application, the production aspect, and also the overview for the global market as well. and just a bit more on the US operation. Our primary warehouse is in Midwest, 18 hoists.

Louis
0:03:39
And the reason that location we're able to cover, you know, we're using 500 miles radius, we're able to cover probably 70% people take of the swine farms or swine customers. And in that warehouse, we constantly carry pretty much all the typical amino acids that you would use on the daily farming. But recently, in order to have further expansion for the business,

Louis
0:04:15
we are engaged with DuBonBel, which is a very reputable producer for minerals, especially for animal feed grade. So we are becoming the exclusive dealership for TriBasic Copper. But we are also, you know, being a salesman, myself, marketing director or manager, whatever you call it, that's my role for Beans to Nutrition. Being a marketing person, I have zero knowledge of the nutrition aspects, which is why we know we had to engage Casey, who has been very kind to help us starting the product,

Louis
0:04:53
you know, analysing this market, and they gave us some valuable feedback, both from pandemic and also commercial aspect as well.

Casey
0:05:02
Yeah, I'm just going to point out a little bit, Louis, we've talked differently in our conversation. So the audience is, you know, you're well known and well established throughout the world from an amino acid perspective but because of your warehousing, because of your connections and ability to handle

Casey
0:05:24
logistics, importation, different aspects of that to get feed ingredients into the US at a cost-effective price point, you can offer the customers when they need maybe just two tons of threening, they have room on that truck to fill in. And so you're diversifying the portfolio, if I understood right, so you're able to provide full truckloads because we all know that freight today is very costly for any feed ingredient, and it can add upwards.

Casey
0:05:58
If you're ordering just a single pallet, $400 or $500 or more. And so if you can order a whole truckload of product and that being different products from beans, for instance, that's where the cost savings and the advantage comes into play.

Louis
0:06:12
Exactly. Exactly. And that's the beauty of amino acid, you know, especially lysine and threonine. You've got to use it and it's moving in large volume. And we are selling truckloads by truckloads. But from time to time, but on the other hand, when it comes to minerals, vitamins, or enzymes, some I would say technical product,

Louis
0:06:35
nobody buys truckloads of them. They still have to send in a truck to pick up or deliver if you're buying a couple pallets. But if we are able to fill the truck with lysine or threonine, then it offsets the overall cost of the entire truck,

Louis
0:06:52
not just for the copper or minerals or enzyme, but also for the amino acid as well. So that is our advantage. And on top of that, amino acid is not a commodity per se, but it has a very similar characteristic of commodity.

Louis
0:07:10
It's reasonable large in volume and it's constantly consumed. We often refer amino acid as a door knocker for other products. So we want to take advantage of that. That's why we are putting this copper product on the catalog. And moving forward, once this one is working out, we have other resources to further introduce other technical products. Hopefully I answered the question. I can't even remember what the question was. Sorry.

Casey
0:07:50
Well, you filled in my gaps as well. But I guess the biggest thing to talk about is obviously we all know copper is a essential nutrient in everybody's diet, regardless if you're a human, pig, chicken, cow, we all need copper to an extent. What drives the cost of copper?

Louis
0:08:15
The copper price itself. So, okay, copper is a commodity, right? So, and it's very volatile as well. When we're talking about copper source for animals, you know, there are typical ones like copper sulfate, copper chloride, and I think someone's using copper cabinet as well from time to time. They are somehow, you know, when we're talking about the costing perspective, they are literally the same thing. They are all, I wouldn't say 99, but 90%, 80% correlates with the price of copper. And if you refer the future price for copper, which is by the way available on the internet,

Louis
0:08:55
and the copper price, the copper future market itself is a hundred billion dollar industry, and the trading is very active. This is good and bad. From a sales or marketing perspective, right, we know the raw ingredients to make TPCC or copper sulfate or whatever is 80% plus copper, raw copper. And the price, any change of the copper future will pass on to the animal copper resource product. But with a lagging, say if we have a surge in copper future today, we wouldn't be able to see a surge of a copper

Louis
0:09:42
sulfate or copper chloride on the same day. I would expect probably 10 days, 7 days, 10 days-ish. This is quite an advantage from a trading perspective. If you are watching the copper future price close enough, you would have at least 7 days heads up. You know, you have a crystal ball which is only working up to seven days.

Casey
0:10:04
But a lot of things that drive copper would probably, what, be new building, market conditions, like if there's higher GDP and things like that.

Louis
0:10:15
I can't remember off the top of my head, but I think we were sitting at a 10-year high for copper price back in June, or late May, when we met in POK Expo. That's probably early June. And shortly after that, it's declined a lot. But even that, we're still sitting at a five-year high, compared to a ten-year high. And that copper price has mainly increased since 2022. The major consumer of copper is obviously for electricity. It's a very good conductor. So all these machines, electronic appliance

Louis
0:10:53
we have in the household, they are all somehow consists of copper. But lately, electric cars, that's a major driver for the consumption of copper. So as we are seeing the shifting from gasoline to electrical cars, I would think the copper price

Louis
0:11:12
would remain very attractive for the foreseeable future. There are other, obviously other aspects, other reasons for the fluctuation of copper as well. Someone's joking, saying, or maybe because of the war, you know, we have two wars constantly going on around the globe and ammunition, that's copper as well.

Casey
0:11:33
So a lot of drivers beyond pigs on feed or birds on feed.

Louis
0:11:38
Yeah, but again, I'm not an expert in the trading of copper. This is just based on my very limited knowledge of this industry.

Aryeri
0:11:47
I had a question, doctor.

Aryeri
0:11:49
How the fluctuation in copper can affect the swine or poultry, the feed formulation?

Casey
0:11:56
Well, definitely. I understand the question you're asking is obviously it's unfortunate we only have a seven-day crystal ball on copper market, right? But when we look at, we're at the five-year high still in the ten-year high of copper. And so when I'm evaluating copper as a growth promoter in my finisher rations and a lot of people will tend to pull that in in summer conditions because the pigs aren't growing as fast. So we need a little boost. And so when you start formulating

Casey
0:12:32
on that it really determines do I use copper as a growth promoter. And that every system will be dependent right and understanding that key value that it has and that you know I have to take it in account what am I getting paid on the shackle? You know, what are my feed costs? What are my space costs? You know, am I long or short on space? Do I have enough barns? So every producer has to really evaluate that separately depending on the constraints or the push and pulls to really understand how that works. But

Casey
0:13:10
from a premix standpoint, this is where when a lot of people bid out premixes they do it on a quarterly basis and so when we look at the copper sources in premixes that if I had a crystal ball maybe I would have bid out a B put my BTM out to trace minerals and would have held off a bidding or maybe I would just don't done on my trace minerals because I know it's not a it's a really market high right for copper for instance and so those are things to consider but when you look at

Casey
0:13:47
that veritability on market prices and that market high we may not look huge in your formulation costs because my premix may have changed five dollars a ton or something because of that change in cost but you add that up and you're a Tyson's or a Smithfield and you're feeding billions of birds or millions of pigs and that fluctuation and not understanding markets is can be just as maybe not as costly as corn or soybean meal but it is something to watch and

Casey
0:14:21
play on those markets so as a nutritionist formulation I can't control the copper cost, but I can evaluate it from at least that growth promotion standpoint aspect, but also, you know, comparing it to maybe other feed additives that may be cheaper, but it's not really like when we look at looking at an energy basis and we always put everything back on a corn basis, copper is copper, so to me from a formulation perspective, I just have to eat that cost in the pre-mix. But then do I evaluate what I'm going to do in my summertime or my late finisher or grower

Casey
0:15:01
rations if I'm really needing that extra weight. And so that's what comes into play a lot when I look at formulation and copper price. And that's if I'm as attuned to that right and a lot of times. I'm not sure we always Look at the micro ingredients in our formulations as true cross drivers, and we kind of sometimes Implement things and ride the wave because the value the risk of that value that consistent Performance that we always evaluate from that perspective, but it's something to be considered.

Louis
0:15:50
And also I think another important aspect is the dosage of this product. They are not as great as the others. We don't really have an alternative supplement of this copper, right? You know, you do need copper one way or another.

Casey
0:16:05
Yeah, and you can't just feed them a copper wire. That doesn't really work. No, but when you look at that, that's where tri-basic copper chloride has received such popularity, especially I think in the monogastric side, who are using more of the pharmaleutical levels, is the fact that you get more copper per pound of product than you do with the copper sulfate and the bioavailability is better than like a copper carbonate and those types of things play a role. So when I'm looking at freight, if I'm

Casey
0:16:40
shipping this in from a lot of copper is not mined here in the US, so it's coming international anyways. There are some copper mines here in the US but not like international supply. So we're most likely you know importing that so when we look at pricing on importation we look at freight to bring it in from the ports all that plays a role so the higher concentrated product does get that value beyond market price. So when I look at adding all those extra costs, tri-basic copper chloride is one of those at the top of my list because of the concentration and the bioavailability.

Casey
0:17:25
And then, you know, we get into nutrition on premixes. What's really great with tri-basic copper chloride is it doesn't impact my vitamins as bad. And we have a lot of producers in the swine industry still retaining premixes for 30 to 60 days. So when I add my premixes and if I'm making a VTM or my vitamins are with my trace minerals, I need to be cautious on that as well in formulation of what I pick. So there's a

Casey
0:17:54
lot that goes into it and then the other layer is we don't like to talk about sustainability but if we work for a large corporation, these little things can add to our sustainability story. And that's becoming more important to have that story, but ultimately there's a lot of other layers of value of looking at a tri-basic copper chloride product from freight and all the shipping costs just because of that higher concentration.

Louis
0:18:25
Yes, that's right.

Aryeri
0:18:28
Related to what Dr. Bradley said, how does the logistic of sourcing copper from China to United States works?

Louis
0:18:36
Copper is a high price product. So percentage-wise, the freight is not considered a major factor in pricing, but that's not until early this year. So the ocean freight probably tripled compared to the same time last year.

Louis
0:18:57
We used to pay $3,500 for each container. And nowadays, if we are lucky, we probably can get one for $8,000. So that alone, that's 6,000 or five and a half grand difference per container. That's a huge difference, especially in the animal feed industry.

Louis
0:19:20
So that's also why we are seeing a surge of interest in copper in this market. Because the way it works is, unlike amino acid, which is constantly demanded by all the farmers. For copper, you can buy one track load and never think about that for three to four months, depending on the scale of your operation. So most of the customers would do that. They buy a track load, they buy enough to keep them going for three to four months, and then not to think about that until they really need it again. Which also means, you know, the seller, the distributor of this product, when they procure from the manufacturer that they saw this surge in ocean freight,

Louis
0:20:11
they would just hold and wait and say, okay, let's wait and observe what's happening with the ocean freight. Maybe it's coming down in a couple of months and then I'll ship more to offset the gap. And it's a very common mentality for smaller ingredients in animal acid because it's for soybean meal, for corn, for DDGS and amino acid, you cannot speculate. If you want to be in the business, you have to have inventory like 100% constantly. Whenever you've got a phone call, you make sure you have an inventory to support, but it's quite opposite for copper resource.

Louis
0:20:51
You can speculate. That means you are able to take a position. If you think the market is long, and then you're just holding the inventory. If you think the market is short, you're just not touching that for a while.

Louis
0:21:06
So I think that's what happens since the beginning of the year. The copper price is surging and the correlates with the surge of ocean freight as well. So if you think of these two together as a sensible distributor, you will not catch that for a good two months. And that's exactly what we're seeing in the market. And no one's been importing that due to the high cost plus high freight.

Louis
0:21:31
And then now here we are, you know, everyone's asking me, you know, would you have anything available in the next two weeks? I don't. I don't believe anyone does. So that's how it's impacting the ocean freight is impacting this product. It's not impacting as much as amino acid or other low margin products. But when we have a surge in ocean freight like this, this year, it does.

Casey
0:21:55
What is driving the surge this year? Because obviously COVID and things drove the surge of things and backlog of orders and stuff. Is it the wars? Is it conflict or something that's causing this increase in freight?

Louis
0:22:11
I think the problem for our era is everything's so transparent. Whatever happens on the other side of the earth, we will see that on the news overnight. And we worried too much. So, you know, I think it all started with the Red Sea, the attack on the vessels in the Red Sea last November. And because of that, you know, the steamship carriers, they have to put on more vessels in order

Louis
0:22:42
to keep the frequency of arrivals in Europe, because they have to detour all the way to to Africa in order to reach Europe instead of cutting through the canal. And as a result, you have less vessels available for shipping to America. And one thing leads to another, early this year, not early this year, May, June and July, South America, they are expecting a surge of the tariff for electric cars, which is pushing the electric car manufacturers to ship everything they can to Brazil in order to get rid of the tariff.

Louis
0:23:23
I think the deadline was August 15th, which is taking a chunk of the container supply. As a result, we ended up with no containers to ship to America and Canada. And now that thing is done, right? The Brazil thing is done. But now we are talking about early Christmas shopping for Walmart and the Target. So that's why the search of the ocean freight is just a report over the report and ending up to where we are now.

Casey
0:23:52
Oh, that's cool. And I was going to say, it's not because everybody's building container homes yet.

Louis
0:23:58
Speaking of copper, can I ask any questions? Any questions. Any nutrition? Yeah. Okay. So, recently I've heard there's a trend of the formulation change in swine and poultry

Louis
0:24:15
to use less, because of the decline of the soybean meal, and that there's an incentive to use more soybean rather than other amino acid, other ingredients. Do you think that's something sustaining or do you think that's just temporary?

Casey
0:24:34
That is a good question.

Casey
0:24:35
That was a key topic at Iowa Swine Day. Unfortunately, I didn't get to the pre-symposium, but I have been keeping up with soybean meal. And I would say at the beginning of this year, end of last year, a huge fluctuation in companies that utilize my services to talk about the animal nutrition market. There's a lot of

Casey
0:24:58
people interested in sway products, different things, and is there market potential for it. And when we look at that, we've done tons of research in, out there on low crude protein diets. We know the values of low crude protein diets for young pigs, young chickens, from sustainability, emissions, all of that. And we forget about a lot of that data done in Europe on that. But what's unique here in the US perspective and especially the swine industry is that Dr. Dean Boyd's work and then David Rosario's work and

Casey
0:25:35
Laura Greiner and all of them have looked at the ability of feeding more soybean meal to PERS positive pigs and so they're seeing those advantages. So when I look at the health aspect obviously not all of our pigs or even our birds are health challenged but when we look at the soybean meal cost it has stayed pretty relatively low. So it's really cost-effective when I look at what I'm paying even for my customers with a non-GMO soybean meal,

Casey
0:26:09
it's still quite a bit lower than it was one, two years ago. And so when I look at my synthetic amino acid needs, I'm actually over formulated on the majority of my amino acids, I still can pull in some lysine, some threonine, maybe some methionine birds definitely probably methionine But when we think about that on a nursery pig, we're gonna run that higher crude protein diet

Casey
0:26:34
because it's Cheaper than bringing an isoleucine or tryptophan if we look at the market differential between that so it's everything that goes into into that play But I also quote, you know caution you to say, well, it's PERS-resistant, PERS, not resistant, sorry, PERS-positive flows, and that's really important.

Casey
0:26:58
Where in the summer months, we're not seeing that as much, but we still have this E. coli issue. And so when we have those issues, having too much crude protein and having hindgut fermentation of protein is actually detrimental and can cause that E. coli

Casey
0:27:18
to fester or rise and copper and feeding higher copper levels late nursery is one of the ways that we combat that as well. So I think it's always an ebb and flow and it's whatever the cool kids are doing research on and what's working today but I think that popular opinion has only played a role because soybean meal markets have been so cheap. There's plenty of soybean meal out there because the oils being used for biodiesel and that really helps keep it low. I have not seen the USDA estimates on soybeans this year yet but

Casey
0:28:00
you know we already know that they didn't, you know, project or predict how much corn we have on the ground. And so, it will really tell that, you know, coming into the fall what that looks like. But then we have to also look at Brazil. And that's something I can't comment on today because I'm not quite sure what their harvest was this summer on soybeans to know that full dynamic, but a lot of that goes in and then, you know, China has not been buying a

Casey
0:28:32
lot of our soybean meal like in the past, so it's been a cheaper commodity or protein source for the U.S. producer the last year than traditionally. So, I think it's just a phase, but when we look at precision nutrition, we put sustainability in there, we try to optimize things and the markets change, I think, you know, the tide will turn and you'll see more synthetic amino acids being used.

Casey
0:29:00
But today, based on the cost matrix, they're not pulling in as heavily as they used to in my diets.

Louis
0:29:08
Are you able to quantify that? Like, you know, what kind of, to what extent are we talking about percentage-wise? How this may impact this market?

Casey
0:29:18
Well, I would say probably my three innings, probably in the diets I've ran, probably down about 50%

Louis
0:29:24
50%?

Casey
0:29:26
of what it was pulling in a year ago. Then thus it's kicked isoleucine out and valine, except I haven't ran any sour rations on the valine part. And so at least on my nursery diets that's down so when we look at the nursery pig that's 25 pounds of the feed and once you started getting more in that late nursery growers some of those other lower essentials would drop out

Casey
0:29:52
right of formulation anyways but it's even pulling on some of that threonine valine where it might have been tight if we're pushing our lysine up to 10 pounds and 10 to 12 depending on what your risk level is on that and I'm saying my lysine's you know six to seven so that's a 30 to 40 percent you know lower so because I'm pulling in less lysine most likely pulling less of those following amino acids as well so that's just in some of the basic formulation I've done recently, but I don't formulate my diets every day either, but definitely my soybean meal cost is down, my feed costs

Casey
0:30:33
are down, livability and production is up with my customers through some of the changes we made, so they're very happy with the nutritional decisions that we've done. Okay, thank you, that's very rewarding. Well I do have one last fun question for you Lewis. We're obviously talking about chicken or pork. Which one, chicken or pork? Your favorite food.

Louis
0:30:56
Pork?

Casey
0:30:57
Pork.

Casey
0:30:58
Which cut of pork then?

Louis
0:31:01
Delicious ones.

Casey
0:31:04
Well, thank you so much for being on and talking about copper markets. And I know we'll have you back to talk about amino acid markets.

Louis
0:31:13
Thank you. Thank you.

4
0:31:14
Thank you for having me.