Good morning, Michael, and welcome to Commodity Conversations. Please tell me a little about Fixkraft – is it a private company?
Fixkraft is a compound animal feed manufacturer founded in 1971. We are Austria’s second largest feed producer in volume – and the largest privately-owned one. We are proud of being in private ownership. It feels more like a family than a big organisation. We’re close to our five owners, the sons of the founding fathers, and they’re close to the business, to the industry. It makes working here quite nice.
Our facilities are in Enns, a port on the river Danube with railway access and close to a highway.
How did you get into the business?
That’s an amusing story. I attended a tourism school, so I know how to cook, but I always wanted to do something internationally. In 2010, I worked for six months in Ukraine as an intern in Donetsk, where I learned Russian. When I returned to Austria, I looked for a job and applied to VA Intertrading, an Austrian grain trading company. They were looking for a Russian-speaking trader, and I started with them as a junior trader in Russian origination.
I also used to study Arabic; although I don’t speak it, I can read it. In my first months with the company, I participated in a business trip to Morocco, even though I didn’t know anything. The company had a client in Casablanca purchasing around a million tonnes of corn every year. He asked me what I thought of the market. I managed to give him an answer, but I thought, “Wow, it’s nice that he asked me.” In other industries, they look at you, see that you’re new and have no clue, and then talk to the older guys with more experience. But no, he genuinely wanted my opinion.
The company then sent me to Algeria to try to open some markets. I also worked with Iran on grains and oilseeds. As you know, commodity trading is about contracts, and you don’t see the physical grains. I thought getting a little bit closer to the goods would be nice, so after three years, I moved to an Austrian apple juice concentrate manufacturer, buying apples in Poland, Hungary, Romania, and Ukraine. It was interesting but different to the grain business. There was no forward business, no futures, nothing. If you offered a reasonable price, the trucks turned up at your plant. If your prices were too low, they went to your competitor. It made it linear. I missed the grains business, so in 2019, when the opportunity came up with Fixkraft, I grabbed it.
How do the different types of animal feed vary? Is pig feed different from cattle feed, for example?
Yes, absolutely, both in terms of nutrients and legal requirements.
There are different legal requirements depending on the type of animal feed. For example, you can use GM soybeans for pigs but not poultry. Most of our feed goes to poultry, where we cannot use GMOs. For cattle, on the other hand, we are restricted to European-origin meals. I can buy Brazilian non-GM feed for poultry but must purchase European non-GM soymeal for cattle.
It is diverse. Non-GM European-origin meals would work for everything, but they are the most expensive option. You could use non-GM European soybean meal for pig feed, but you wouldn’t sell a kilo because it would be too expensive.
We use Danube-soy-certified soymeal for laying hens. They require meals exclusively grown in Europe. And then we also use some high-protein, mid-protein GM and non-GM soy, depending on price. The price plays a role here. We use eight, maybe nine, different types of soya in our production.
And you must separate them all.
Yes, we must keep them separate.
Is your objective to obtain the right mix of carbohydrates and proteins at the best possible price, or is it more complicated than that?
There is the legal side I have already mentioned, but there are some further issues, such as the permitted level of toxins. We need to track them, particularly in corn.
Some farmers believe that they can do on the farm what we do in a compound feed factory by mixing their homegrown grains with soya. It does work. I’m not saying it’s wrong, but they do not have the analysis. It’s a natural product, and corn has different humidity and starch levels.
Our customers often require specific feeds for their animals. There are so many factors in raising livestock. It’s not just feed; it’s also the water and the heating. We have harsh winters here in Austria, and with high energy prices, farmers may reduce the heating, which can affect livestock growth.
We also look at the amino acids in the soya. We use synthetic amino acids to make the feed more easily digestible for the animals. And there it becomes a kind of rocket science.
Do you have computer programs that help you? Is it something that artificial intelligence could help you with in the future?
To a certain extent, yes. We do have a computer program that gives you the best mix for the best price. You enter the costs and the products available, and you press Start. It then shows you the cheapest combination for each breed of animal. However, there are certain aspects that the computer program does not measure. For example, we add sugar beet pulp pellets or apple pomace to our cattle feed. Neither calculates financially, but it is hard to quantify how much taste is worth.
Artificial intelligence will struggle with customer needs. If one of our customers has a problem, we visit them and try to find a solution together. Sometimes it’s obvious, like increasing the heating or changing the air filter; sometimes, it is more complicated, and we may call a veterinarian to help.
For cattle, we also need to analyse the farmer’s grass. If the grass is dark green, it will have a lot of protein, and we can lower the protein in the compound feed. We must analyse the corn for pig feed if the farmer uses his own corn.
How many inputs would go into feed for dairy cattle – five, ten?
Much more! And as I mentioned, we work with our clients to get the proper feed for them. We also do niche feed products, for example, for deer.
How do you hedge your inputs and sales? Do you use futures, OTCs, or physicals?
My favourite hedge is when we buy the raw material and sell the compound immediately. In most cases, it is not possible.
How I hedge depends on the product. There are some products where I feel comfortable working with futures. Matif wheat correlates well with feed wheat, especially regarding new crops.
It is more complicated for corn. Many German producers use Matif wheat to hedge their corn. They say it works for them. I have had bad experiences with Matif corn futures due to a lack of liquidity.
Sometimes, I do physical hedges on corn. I buy corn delivered on a barge to my factory and sell it elsewhere.
Soya bean meal is more complicated. In the last two years, you have had a poor correlation between Chicago and non-GM soy; you could lose a lot of money. If the euro/dollar exchange rate is stable, it’s easier for GM soy because I can hedge it on the CBOT. I prefer to keep my hedges in euros, so I use physicals to hedge, buying a delivered physical barge and selling the same quantity in the port.
Do some trade houses offer OTCs and hedging platforms?
They do, but I prefer to do the hedging myself.
Do you sometimes buy full cargoes of soybeans?
We are unfortunately too small for that. Our trading business is not that big. We sometimes buy a part cargo, maybe a hold of 5,000 tonnes, but it would be the maximum.
How has the Russian invasion of Ukraine impacted your business?
My job was easy when I first started with Fixkraft. Things started to get messy regarding availability when the Covid pandemic hit in 2020. Nobody knew whether the trade flows would continue or the borders would close.
In January 2022, I told one of my colleagues that the pandemic was over and we would enter a calm period again. The Russians invaded Ukraine a month later, and I realised the pandemic had just been a warmup. All hell broke loose. Price volatility exploded, and you couldn’t buy anything. Suppliers didn’t know if they could deliver. Nobody was selling.
We had three contracts that specified Ukrainian origin. Our suppliers could have claimed force majeur because of the war. But everyone delivered. They executed the contracts even though they were at a lower price than the market. They said, “Please understand it’s not easy, but we will deliver.”
One supplier told me he couldn’t find truck drivers. He had the cargo in Ukraine but said males between 18 and 60 could not leave the country. Somehow, he found a guy who was 62 years old. They pulled him back from retirement, got him in a truck, and three days later, he delivered the cargo. These guys value their business relationships. I will not forget that. But I had never seen anything like it regarding volatility and market movements.
Did any of your supply chains break? Was there ever any risk that farm animals wouldn’t get enough to eat?
Many of our customers called us to ask if we could deliver. And we said, “Yes, we can.”
We had a temporary challenge with mono-calcium phosphate. A raw material for mono calcium phosphate is only produced in Russia, and our supplier had his account frozen and couldn’t deliver. We found other suppliers at a higher price. The market worked; we all managed, and the trade continued.
Do you buy some of your inputs on long-term contracts, or do you buy mostly spot?
We do buy some products, for example, salt, on an annual basis, but we mostly buy up to a few months forward.
I imagine that you buy in volume and sell piecemeal. Does that mean that you hold significant stocks?
Our storage is relatively small for the volume we are producing. I would prefer more storage, and I hope my CEO reads this interview. We do not hold extensive stock.
How many countries do you buy products from?
The market is global, and it’s a matter of how you define the origin. Our GM beans become soybean meal when crushed in Germany or Netherlands. But the beans are from the US and Brazil. They are not of European origin.
We do not use palm oil, so we don’t import from Indonesia or Malaysia. We get amino acids and vitamins from China, which we buy from traders because we are not yet big enough to ship from mainland China. So, the goods might come from China, but our partners are German, Italian, Spanish, and Swiss trading companies.
Indian soybean meal occasionally finds its way to Europe. We get phosphates from Russia and Morocco.
I would say we have business partners in about 30 countries. It is a truly global business.
Will the recent EU legislation on deforestation affect your business, particularly for Brazilian soymeal?
I think the legislation is a good step, but it will be challenging for the trade houses to trace soybeans back to the field and certify they are deforestation-free. I do not originate and import beans into Europe. My trade house suppliers will be the ones who must bear the weight of the new legislation.
We implemented traceability in our supply chain a few years back. We know which farmers get which goods, and we can trace each truckload back to a particular supplier.
Have biofuels complicated your business or increased the price of your inputs?
They are a price determination issue. They have increased price volatility but have not impacted our physical supplies. Molasses might be an exception as it is often difficult to find.
In Austria, we need to import corn for feed because the citric acid and starch sectors consume the equivalent of our domestic production. A while back, there was a political discussion about whether to reduce industrial consumption by law. Some favoured it, while others said it would be too big an intervention into the free market. From an ethical point of view, I would prefer it if the country prioritised human consumption, then animal feed, then ethanol and industrial use. But it is complicated.
I’m beginning to understand that you have so many different inputs you can easily find a substitute in the case of a shortage or price spike in one of them. It effectively means that the supply chain for animal feed is very flexible.
That’s true to a certain extent. Some inputs substitute well based on relative prices. If wheat is cheaper than corn, you use more wheat.
But there are limits. For corn-fed chickens, 50 per cent of the feed must come from corn. Some of our feed comes with unique ingredients like sugar beet pulp pellets. We can’t replace them.
You can substitute sunflower meal with rapeseed meal, but to obtain a high protein feed, you need soymeal. You cannot reach the required amount of protein with a rapeseed meal.
There are some inputs you cannot substitute, like vitamins or phosphate.
The Netherlands is working to reduce their livestock numbers to meet their GHG emission targets. Do you see the same thing happening in other EU countries?
In general, we see meat consumption declining, although it will only have a limited impact on animal feed demand. However, it could result in a consolidation of the animal feed industry in Austria.
I see opportunities in terms of quality rather than quantity. For example, we have developed cattle feed that reduces the cattle’s methane emissions. It’s an excellent product.
Also, for animal welfare reasons, there is a trend towards slower-growing breeds, especially poultry. There is also a trend for animals to spend more time outside, where they grow more slowly. They need feeding for a longer time.
What is the greatest challenge in your business?
Probably, my biggest challenge is to keep our production running. We have customers who need daily deliveries. My worst-case situation would be if we were forced to halt production due to flooding, low water levels, border closures etc.
My second most significant challenge is price. Our target is not to always have the lowest price but to always have a lower price than our competitors.
My third challenge is maintaining the quality of our feedstocks. However, we have long-term relations with our suppliers and trust them. We keep open communications with them and work together to solve quality issues.
You mentioned the water levels. Could you supply your port on the Danube when water levels fell last year?
We had problems upstream. Downstream, where the water levels are always higher, it was still somehow possible.
One upstream supplier usually ships 1,000 tonnes per barge but had to reduce each load to 400 or 600 tonnes. We managed to get corn deliveries from Hungary and Serbia with barges carrying 800 tonnes. We have good water levels now and are receiving shipments of max. 1600 tonnes.
I always try to diversify my purchasing to have cargo on barges and trucks in case of low water or flooding.
How do you see the business developing over the next few years?
As I mentioned earlier, reducing greenhouse gas emissions, mainly methane, will lead to a consolidation in our industry. The overall market will not grow, but the smaller players will exit.
I also expect energy sources to change. We already use some solar panels in our production and reuse the heat from our machines.
Thank you, Michael, for your time and input.
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This is part of a series Commodity Professionals – The People Behind the Trade