Capacity building, investment wave forecast for soy protein concentrate sector

That publication analyses the direction of the specialty protein sector and the most critical issues facing the industry, the changing demand dynamics between food versus animal feed.

The report​​ looks at four key uses for a raft of specialty proteins – fishmeal, SPC, vital wheat gluten, corn gluten meal, and others - their use in human food, in pet food, in aquaculture and in animal feed, which, in the main, is in feed for young animals, specialist livestock feed.

We spoke to David Jackson, LMC’s director of oils & fats and proteins, who led the research.

The overriding goal of the report was to get the longer-term view; to look at how markets would be in 10 to 15 years’ time, but that objective got slightly sidelined by the COVID-19 pandemic appearing half-way through the team putting together this report, he said.

“We now have a separate focus on what is happening currently due to COVID-19 situation for each market, how quickly we might come out of that, and then how quickly we might get back to any long term trends, and whether those long term trends are still valid,” ​said Jackson.

Fishmeal​

Looking slightly longer term, fishmeal will continue to be sought after, markets will become more competitive for that protein again; China will look to fishmeal to boost piglet health, he reckons.

The current crisis will encourage greater reflection on how animals are fed, on where the feed is coming from, on food security, on provenance, and, most definitely, on health and nutrition, he outlined.

Moreover, after significant disease outbreaks, ASF in pigs, and then the Covid-19 pandemic, China must focus its attention, said the economist.

“And when China focuses its attention, things happen quickly, on an enormous scale, especially on the food side. How do you keep disease down in piglets? How to you boost health in the pig herd? Well, one way the Chinese have always done so, was naturally through fishmeal. Fishmeal has immune boosting properties for piglets, they benefit a lot from that. ​

“Having been outbid by the aquaculture sector in the last decade, China could become quite aggressive in purchasing fishmeal which would have an effect on prices."​

Soy protein concentrate​

The plant-based protein sector was a fad that became a trend, a trend that is now accelerating, particularly in the US, and one that is going to be very strong, with consumers looking for alternative sources of protein, meat substitutes, etc, stressed Jackson.  

“That trend will increase competition for soy protein concentrate (SPC) as that speciality protein goes into those meat analogues. Human food use of SPC along with its use of wheat gluten and pea protein is going to be a very aggressive trend, one that has gathered speed during the COVID-19 outbreak as US consumers could not get meat. That development might convert a percentage of those consumers.”​

Only a small percentage of soybean production goes into SPC. In aqua feed, typically used is Brazilian type SPC, but it is not all from Brazil. China undercut the SPC market over the past decade, ​said Jackson. “They have become very efficient producers of SPC. They export a lot into Europe for aqua feed production.”​

LMC believes capacity for SPC post-COVID-19 will increase.  

“The general interest from the aquaculture sector looking for substitutes for fishmeal and the food sector competing harder for all these different protein sources will result in the need for greater capacity for SPC, with the typical signal of such need in the market being higher prices. There has not been much capacity building for SPC in the past few years, we think that will change, there will be good prices and there will be a wave of investment in the segment in three to four years’ time."​​​

Corn gluten meal​

Corn gluten meal is a high protein feed product, but one that is kind of caught between the commodity markets, like soybean meal (SBM), and the more specialist proteins like SPC and vital wheat gluten, he said.

“It is not a commodity feed, it is a specialist feed, but a lot of it is still going into poultry and pig finisher rations. By volume - that is where the bulk of it goes – and it must price itself competitively in those bulk protein markets. It probably won’t ride the same wave that we think is coming in the mid years of this decade for specialty proteins.”​

Nevertheless, the supply of corn gluten meal is constrained, it being a by-product of starch production and wet milling, he said. “And starch demand is not growing as quickly as demand for these specialty proteins, that factor keeps the price of corn gluten meal at a reasonable level, stops it from collapsing.”​

That is another point in favor of SPC segment growth, he reiterated. SPC producers can just build a factory directly, it is not a by-product of another industry.

“If the market wants it, you just build another factory, which we think will happen. In terms of corn gluten meal, you need demand for the syrups. And looking at pea protein, you need demand for pea starch, you need the peas and there is nowhere near as many peas, that factor will start to become a constraint especially in places like Canada. It is the same for potato protein, whereas there is endless raw material for SPC production and no need to get rid of any by-products. SPC is like the filler that can piggyback on the wave of interest in the specialty proteins market – SPC production can expand more readily.”​

Where is that expansion going to happen?

“Most likely SPC production will grow in Brazil and China. The Chinese are so competitive and efficient at producing it.”​

Of course, renewed attention on supply chains, and shortening them, post COVID-19, will affect the pattern of investment in all these segments, SPC included, said LMC.