Information about the market forces supporting the consolidation of feed mills was included in a recent report from CoBank’s Knowledge Exchange and provided to us. It was written by Tanner Ehmke, senior economist on grain, oilseeds, ethanol and farm supply, and Trevor Amen, economist on animal protein.
“The addition of new animal processing facilities will continue to drive livestock numbers higher with feed demand following suit, creating opportunities for feed mills to expand capacity and offer new services to a growing livestock industry,” they said. “Meanwhile, the implementation of FSMA [Food Safety Modernization Act] regulations will expedite the closing of small, outdated facilities and accelerate consolidation in the feed mill space.”
However, the transition within the feed industry is not expected to be indefinite, the report pointed out.
“This fast evolutionary phase of the feed mill industry is expected to plateau in the next two years as the construction of new animal processing facilities is completed and animal production stabilizes,” they said.
Feed mills have seen better profitability in recent years as grain prices have remained low, said Ehmke and Amen. Increasing animal herds, especially swine, also has supported domestic demand.
However, with the growth in demand for feed production, there also has been a consolidation among how many feed mills are producing, they said. The overall number of feed mills dropped 11% in the last two years.
“Driven by the expansions in animal slaughter capacity at the local level, feed mills are bracing for a surge in demand in the years ahead,” they said. “That growing demand for feed, however, will be shouldered by fewer and bigger mills that have achieved greater technological efficiency and capacity.”
As animal production facilities have gotten larger, they may create more challenges for smaller feed mills lacking needed capacity or older facilities that do not have the ability to meet specialized needs.
Domestic demand for feed dropped several years ago, and in 2012-2013 feed use fell to levels seen in the 1990s, they said. However, improved global feed abundance has helped use levels increase.
“As livestock and poultry numbers continue to grow throughout the US, feed demand for corn, sorghum, barley, oats, wheat, soybean meal and DDGS, is expected to remain elevated in the years ahead,” they said. “Absent major supply shocks, the price of feed inputs is expected to hold at desirable levels for end users over the medium term.”
However, there also are some uncertainties for feed mills, said Ehmke and Amen. “Trade policy uncertainty under the Trump Administration could create additional volatility in grain, oilseed and animal protein markets at a time when export growth is critical to balancing larger supplies,” they added.
There also may be some risks for feed mills with high operating costs, they said. But, as global demand for animal protein continues to support an expansion in animal production, the near-term outlook remains positive.
To meet demands, feed mills have been opting for investments to expand capacity or may be replacing older facilities with larger more efficient mills, said Ehmke and Amen. Updating efforts also may push some mills to focus on species-specific production.
“Livestock and poultry operators are increasingly interested in custom feed formulations with micro-ingredients and species-specific medications,” they said. “New mills are also employing expert consulting in animal nutrition with feed formulations requiring veterinarian feed directives (VFDs).”
The nature of consumer feed needs also is changing, they said. Customers have been turning from bagged feeds to bulk orders.
Additionally, increasing labor costs mean that feed mills are striving to be more efficient and improve use of technology and automation, they said. The drive to address costs of labor, along with improving efficiency, worker safety and feed quality also may be leading older mills to close in favor of new facilities.
Influence of regulation
Some of the push for new or revamped facilities could stem from FSMA implementations, said Ehmke and Amen.
Some provisions of the law for the largest producers have taken effect, but others, and those for smaller companies, are set to rollout in the next several years, they said.
“Currently, there is no sign that the Trump administration will defund FSMA,” they said. “Anticipating the regulatory change, feed manufacturers are preparing mills to be compliant with all current and potential regulations stemming from FSMA that may develop in the future.”