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Understanding fats market the key to buying well this year

Rumen-protected fats are used by many herds to minimise negative energy balance in early lactation and improve milk production, but their cost isn’t affected by the same factors that influence the price of most other feeds.

“It means that simply following the feed commodity markets won’t help you get the best deal on protected fats this summer, or tell you when to buy forward for next winter,” explains Trident’s Daniel Chilvers. “Protected fats are manufactured using a co-product from palm oil refining in Asia, called palm fatty acid distillate (PFAD), and it’s an industry that reacts more to the price of crude oil than anything to do with feed supply or demand.”

Around 3 million tonnes (mt) of PFAD is produced annually, and although used in animal feeds for more than ten years, it’s the increase in demand for PFAD as a feedstock for bio-diesel production that caused prices to peak last winter.

“With the PFAD market finally dropping back this spring, the price of protected fats in the UK has fallen”. Mr Chilvers continues. “But it’s unknown how long these prices will remain. PFAD is once again favourably priced against other bio-diesel feedstocks like rapeseed oil and crude palm oil, and very close to the value of crude oil.”

Against this, the weak economic outlook continues to push oil prices down, and global production of palm oil (and hence PFAD) is increasing this year. However, the huge size of the bio-diesel sector compared to the PFAD market means that even small increases in demand could cause prices to surge again this winter.

“So if a good opportunity to buy comes up, cover at least some of your winter requirements now to guard against possible price increases. And if prices do rise, consider switching to a 50% protected fat blend to help keep feed costs under control without losing all the benefits that fat-based energy can provide,” adds Mr Chilvers.

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