Crude Oil Prices and its effects on Feed Additives

As the world´s population continues to increase, demands for food will experience dramatic growth. This coupled with raising affluence in developing nations, will shape the eating habits of the global population. Protein rich foods particularly meat consumption raises when disposable incomes rises. Consequently, the animal food industry and its allied sectors are set to experience major growth. Analysts have observed that this demand is influenced my many factors, commodity prices being single largest determinant. Prices of commodities again are governed by many economic factors. The focus of our current communication will be to assess the effect of crude-oil price on commodities and their influence on feed additives.

Animal Feed additives comprise just one percent of the volume of feed but can cost as much as ten percent of the total cost. This segment therefore is always closely evaluated by feed manufacturers and farmers. The broad commercial term "Animal feed additive" generally comprises the two major technical segments - supplements and additives which include amino acids, vitamins, minerals and antibiotic and non antibiotic performance Promoters. Table 1 shows the different feed additives that use a petrochemical derivative as a raw material in its industrial manufacturing process. Fluctuation in crude oil prices logically will impact the prices and availability of these additives.

Table 1: Showing various feed additive which have petrochemicals raw material

Crude-oil prices have been a real indicator of world economy. Tracking past economic activity and crude-oil prices, it can be said both variables have cause-effect relation. Assuming that global growth will be 3 percent per annum from year 2000 to 2030; the International Energy Agency has projected that global oil demand will increase by 1.66 % annually over the same period, leading to a two -third rise in global demand for oil, to 120 million barrels per day. This in turn will cause consistent increase in oil price approximately $8/ barrels per year. The crude oil price trends for last 5 years are summarized in table 2 and chart 1 below.

Table 2: Showing crude-oil prices in last five years

 

 

 

 

 

Chart 1: Showing crude-oil prices in last three years

Major fluctuations on crude oil prices can be seen in year 2008, 2009 and 2010. The reason for fluctuation could be:

Methionine is an essential amino acid, which play critical role in broiler production as the first limiting amino acids. DL-methionine is manufactured exclusively from petrochemical raw materials (Propene and Methanol) by a chemical process. Table 2 and chart 2 show the data on the prices of Dl-methionine and Crude oil through the last 5 financial years. A direct correlation between the two price trends ( 0.41)  is seen.

Table 3: showing crude and DLM prices

Graph 3: showing average DLM and crude-price trend for past year 2005-07

Impact of crude oil cost on Vitamin AD3 & E prices

Raw materials for these two are Acetone, Acetylene, Tri-methyl phenol, Isobutylene, Formaldehyde, Ethylene, Isoprene, and Iso-valeraldehyde. So, Vitamin A and E has petrochemical raw material. Hence we can also conclude that Vitamin AD3 has petrochemical raw material. Inspite of both vitamins raw material of crude-origin, correlation between Vitamin AD3 and E prices with Crude-oil stand to be negative i.e. -0.1477 and -0.1730 respectively in 2007-09 period. Here other economic factor has important role to play in determining prices of Vitamins, which need further investigation.

Table 4: Showing Crude price & AD3 price

Graph 4: Graph showing price trend for Vitamin AD3 and Crude-oil

Vitamin E

Table 5: Table showing price trend for Vitamin-E and crude-oil 

Graph 5: Graph showing price trend for Vitamin-E and crude-oil in 2010

Raw materials for Choline chloride are Trimethylamine (TMA), Ethylene Oxide (EO) and Hydrochloric Acid (HCl). Here both TMA and EO are petrochemical raw material.

Table 6: Showing correlation between different variable

 *Choline Chloride prices are taken of Jubilant´s Choline Chloride

Now from above table, we can clearly conclude that there is significant correlation in crude and ethylene oxide prices. However that hasn´t been passed on to our choline prices, which definitely going to hit our bottom-line.

Table 7: Showing pricing for Choline Chloride and its raw material and crude oil for past two year

Graph 6: Depicts relation between crude-oil and Ethylene Oxide

Impact of crude oil cost on Lysine

Lysine is industrially produced by microbial fermentation, from a base mainly of sugar. One the major raw material for Lysine is methanol. Lysine is an important additive to animal feed because it is a limiting amino acid when optimizing the growth of certain animals such as pigs and chickens for the production of meat. However correlation between Lysine and crude-oil comes out to be negative i.e. -0.15. This means that the period which we have taken i.e. 2007-09 might have other economic factor which are playing major role for movement of Lysine price in opposite direction with the respect to crude prices.

Table 8: Table showing price trend for Lysine and crude-oil 

Graph 7: Graph showing price trend for Lysine and crude-oil in 2010

Betaine is another feed additive where crude-oil price fluctuation affect has been studied. Raw materials required for manufacturer of synthetic Betaine are trimethylamine (TMA) & mono-chloro acetic acid and both are of crude-origin. However relation between TMA and Betaine prices was not significant and also crude oil and Betaine prices weren´t significant. This can be due to Betaine being new-age feed additive, where impacts of crude-oil prices haven´t been felt yet. It leaves us with further investigation on Betaine price in reference to crude prices in coming future.