Save dollars despite the drought
Feb. 7, 2013
by Jeff Gelski
The drought of 2012 scorched crops and led to rising ingredient prices. Now in 2013, the aftereffects have the potential to make more barren the pocketbooks of consumers and the profit margins of food manufacturers.
According to a “Food Price Outlook, 2012-13” issued in December by the Economic Research Service of the U.S. Department of Agriculture, the drought affected prices for corn, soybeans and other field crops, which should drive up retail food prices. Most of the drought’s impact should be realized in 2013 since the transmission of commodity price changes into retail prices typically takes several months to occur, according to the report.
To deal with the drought’s effects, grain-based foods manufacturers may consider cost-reduction opportunities in ingredient selections, including those for vital wheat gluten, dough conditioners and eggs. Other opportunities may arise in oils, fat levels and grain blends, said Bart Bender, technical service representative for Horizon Milling, Minneapolis, a joint venture between Cargill and CHS.
“There is a myriad of things we can offer for cost reduction,” he said.
Horizon Milling’s WheatSelect white spring whole wheat flour potentially may reduce ingredient costs. For instance, in certain applications it allows reduced vital wheat gluten use.
“It’s more of a case-by-case basis based on formula,” Mr. Bender said.
Horizon Milling personnel may enter the bakeries of customers and do trials on such ingredients as dough conditioners and antioxidants, he said. They may find ways to substitute WheatSelect into an existing formula to take out costs.
According to Horizon Milling, the optimal granulation size and mixing resiliency of WheatSelect does not “tear” at the dough, which means bakery manufacturers need fewer or no conditioner ingredients.
For cost reduction in pasta production, Mühlenchemie, Ahrensburg, Germany, last year introduced a Pastazym Plus combination of enzymes and active ingredients. Pastazym enhances the quality of pasta made from both hard wheat and soft wheat.
“This produces appreciable cost savings and makes manufacturers less vulnerable to commodity market swings,” the company said.
Pasta and noodle manufacturers may switch to more cost-effective sorts of wheat to keep input costs down. Pastazym Plus may be used to make soft wheat pasta that displays al dente characteristics.
Although last year’s drought affected corn prices more than wheat prices, millers and bakers still have reason to stay alert to wheat price changes.
According to an agricultural commodities report issued in January by Rabobank, U.S. wheat will see an increased use in feed supply. Also, U.S. wheat export sales should be higher in 2013.
The drought of 2012 may continue to affect prices of several grains in 2013.
“Production setbacks in 2012 have resulted in another drawdown in global inventory levels, increasing the reliance on a return to favorable growing conditions in the Northern Hemisphere in coming months,” Rabobank said. “Although we expect an increase in U.S. grain and oilseed production for 2013-14, we see significant upside risk to our price forecasts should drought conditions not improve in coming months. Our analysis suggests that this dependence leaves prices exposed to another volatile move in 2013 given sub optimal conditions continuing in a number of the world’s key producing regions and in the U.S. ahead of planting.”
In corn, U.S. demand rationing remains insufficient to meet record-tight inventory levels, according to the Rabobank report. The bullish outlook for Chicago Board of Trade corn prices likely will spill over to C.B.O.T. soybeans, too, it said.
Corn and eggs link
Corn, since it’s often used as feed, may affect many other prices, including those for chickens and their eggs.
Arla Foods Ingredients, Viby, Denmark, a subsidiary of Arla Foods, estimates 60% of egg input costs come from corn, said Terese O’Neill, sales manager with Arla Foods Ingredients.
“It’s really, honestly in my opinion, all up to corn,” she said of egg costs.
On Jan. 25, March corn futures were trading at $7.20¾ per bu, which compared with $6.41¾ per bu a year earlier. Meanwhile on Jan. 25, nest runs of eggs were trading at 65@70c per dozen, which compared with 47c a year earlier.
Arla Foods Ingredients has designed a range of fractionated whey protein ingredients called Nutrilac that may reduce egg use by 50% to 100% in baked foods to potentially save bakers money.
“Fifty per cent is pretty common,” Ms. O’Neill said. “I’ve seen 75%. I’ve seen 100%. Fifty per cent is a good place to start. It comes down really to what cost savings you want, and if you want eggs out (completely) or not, for whatever reason.”
To create the Nutrilac range, Arla Foods Ingredients, using fractionation and modification technologies, discovered how to pull apart whey proteins and rearrange them for various functions. The functions include egg-like characteristics such as emulsification, whipping and gelling.
Potential bakery applications include cakes, bread, pies, cookies, muffins, pastries, brownies and fillings.
Ms. O’Neill said the Nutrilac whey protein ingredients work especially well in keeping together structure in snack cakes, which need to stay together during plant runs.
“They go through a lot of gyrations,” she said.
Injecting cream into snack cakes further tests structure, and then trucks must distribute them to retail stores.
Other ingredients designed to reduce egg costs are available.
Penford Food Ingredients, Centennial, Colo., offers PenTech NG whole egg and egg yolk replacement technology. It may lead to savings of up to 50% in dry whole egg and dry egg yolk and up to 60% in liquid whole egg and liquid egg yolk.
The PenNovo 00 specialized bakery enhancer has been shown to work as an egg white replacer in gluten-free products, an egg wash replacer for regular and gluten-free products, and as a rice flour replacer for volume enhancement in gluten-free products. It may lead to savings of up to 60% in dry egg white and liquid egg yolk.
Natural Products, Inc., Grinnell, Iowa, offers Blue200 gluten-free whole egg replacer. Blue200 offers functionality similar to the company’s original egg replacer (Blue100) and functions as a replacer for whole egg powder or liquid whole eggs in a variety of baked foods.
J&K Ingredients, Inc., Paterson, N.J., offers the Vita-Ex egg extender that may cut the costs of using eggs in sweet goods, Danish, rolls, donuts, cookies and cakes by 20% to 66%. Made of ingredients such as egg yolks and whole egg solids, Vita-Ex does not affect the flavor, volume or texture of baked foods.
Ingredion, Inc., Westchester, Ill., offers ways to reduce fat and oil costs.
“As ingredient costs increase, baked goods manufacturers are being challenged to mitigate the impact of these rising costs without sacrificing the consumer’s eating experience,” said Patrick O’Brien, bakery marketing manager with Ingredion, Inc. “Product developers are often challenged to mitigate costs without sacrificing taste, texture, product quality and most importantly — the consumer’s eating experience.
“Solutions in the form of specialty starches and sweeteners as well as functional flours help manufacturers to mitigate rising formulation costs by reduction of costly ingredients, capital avoidance and energy cost savings.”
Ingredion’s Homecraft Create 765 specialty flour system may be one such solution.
“Homecraft Create allows baked goods manufacturers the ability to reduce costly fat ingredients such as shortening and oils in their formulation without changing taste, texture or product quality,” Mr. O’Brien said. “Case studies completed by our applications team show that by reducing the shortening powder in a standard industry bakery mix formula and replacing it with Homecraft Create 765 can result in cost savings of 8c per 18-oz unit.”
Similar case studies have involved bakery applications such as ready-to-eat cakes, cookies and pie crusts, he said.
“Utilizing our broad product portfolio, Ingredion can also assist in reduction and/or replacement of a number of other costly ingredients that customers may be looking to reduce in their formulation.”
Sugar, cocoa steady for now
Prices for sugar and cocoa seem settled for now, but they have soared in years past and remain above historical averages. On Jan. 25, the price of Midwest beet sugar, f.o.b. plant, was 29@31c per lb, which compared with 51c a year ago. According to the January Rabobank report, the 2012-13 surplus forecast for sugar was revised to 6.6 million tonnes from 5.9 million tonnes.
“Fundamentally the market is in oversupply, but concerns about the Thai crop, ethanol demand in Brazil and production in India are expected to constrain selling and price moves below U.S. 18c/lb,” the report said.
The price of cocoa powder, East coast points, on Jan. 25 was $1.55@$1.65 per lb for 10-12% natural, which compared with $2 per lb a year earlier. The International Cocoa Organization has expressed concern about cocoa supply in the coming years. The organization projects that if chocolate sales continue to grow in emerging countries, an additional 700,000 tonnes of cocoa will be needed by 2017.
Although North American grain-based foods manufacturers may have little control over rising populations in developing countries or weather patterns closer to home, they do have options in addressing results of those trends. Alternative ingredients designed to reduce costs are available.
Antioxidant blends gain favor in Europe
Manufacturers in Europe have begun to blend different antioxidants to minimize cost because of commodity prices and raw material shortages, according to a report, “Analysis of the European shelf-life extension food additives market,” released last December by Frost & Sullivan.
Food companies may choose to use more natural antioxidants such as mixed tocopherols (vitamin E) or rosemary extracts because of consumer perception that natural products are healthy, according to the report.
“However, naturally derived antioxidants are experiencing a huge rise in price,” said Ashwin Raj Ravinder, a chemicals, materials and food research analyst for Frost & Sullivan. “As a result, the trend of blending different antioxidants is gaining appeal.”
Blending allows suppliers to partially replace natural antioxidants. For example, rosemary extracts may be blended with mixed tocopherols and ascorbyl palmitate, which is synthetic.
Raw materials needed to manufacture antioxidants are scarce, according to the report.
“Vertical integration will be crucial to overcoming challenges related to the dearth in raw materials,” Mr. Ravinder said. “Strategic partnerships and alliances with raw material suppliers, too, are vital to gain market share, especially in the natural shelf life extension food additives market.”