DENVER, May 5, 2017 /PRNewswire/ -- A prolonged period of low feed prices combined with steadily growing demand for animal protein continues to fuel profitability and optimism for U.S. feed mill operators, according to a new report from CoBank. However, changes in the industry are spurring the need for newer, larger facilities and forcing the closure of older mills that lack the newest technology.
The abundant and affordable supply of grains and oilseeds has led to a 19 percent increase in total domestic feed usage since 2012, when use had plummeted to its lowest level since 1995. With many mills operating at capacity, they are now gearing up for the next surge in demand, due to come from the swelling U.S. hog population.
"Many feed mills are investing in upgrades to aging facilities or replacing them with new facilities that boost capacity and efficiency to meet the growing demand for livestock feed," said Tanner Ehmke, CoBank senior economist, grains, oilseeds and ethanol, and farm supply. "There are several reasons for the huge investments being made, but expansion in the hog sector is the leading factor," added Ehmke.
As the level of feed demand from the animal production sector has expanded and evolved, so has the nature of that demand. It's become considerably more diverse and specialized. Livestock and poultry operators are increasingly calling for custom feed formulations with micro-ingredients. New feed mills are more frequently focusing on serving single specie markets with fewer general purpose toll mills.
"Large bulk orders are increasingly replacing smaller orders and bagged feed," said Ehmke. "There's also a greater tendency for new mills to offer animal nutrition expertise and consulting services, along with formulations requiring veterinarian feed directives (VFDs)," said Ehmke.
Rising labor costs and a tightening labor market are also driving feed mills to pursue new efficiencies through technology and automation. Consequently, the total number of feed mills continues to decline as older mills are consolidated.
Additionally, the new regulatory environment highlighted by the Food Safety Modernization Act (FSMA) is expected to hasten consolidation within the industry with bigger, technology-driven mills that meet the more stringent requirements.
The costs associated with FSMA compliance may lead some mill operators to exit the business, while others will merge, consolidate or invest in new procedures to ensure compliance.
"Despite these challenges, the outlook for the feed business remains strong over the next few years, particularly for those mills positioned to invest in facility enhancements," said Ehmke. "Meat packers are making plans to increase slaughter capacity, while profitability at the producer and integrator level is triggering production expansion. That adds up to a positive outlook for improved feed demand, particularly over the next two years before animal production is expected to stabilize."
A brief video synopsis of the report, "Feed Mill Expansion & Outlook" is available on the CoBank YouTube Channel. The full report is available to media upon request.
CoBank is a $128 billion cooperative bank serving vital industries across rural America. The bank provides loans, leases, export financing and other financial services to agribusinesses and rural power, water and communications providers in all 50 states. The bank also provides wholesale loans and other financial services to affiliated Farm Credit associations serving more than 75,000 farmers, ranchers and other rural borrowers in 23 states around the country.
CoBank is a member of the Farm Credit System, a nationwide network of banks and retail lending associations chartered to support the borrowing needs of U.S. agriculture, rural infrastructure and rural communities. Headquartered outside Denver, Colorado, CoBank serves customers from regional banking centers across the U.S. and also maintains an international representative office in Singapore.
For more information about CoBank, visit the bank's web site at www.cobank.com.
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