New Update From CEO Michael Siegel - News on Thursday
January 5, 2013
Happy New Year and this will truly be a Happy New Year. We had a slight hiccup on delivery of two specialty pumps from Germany. The process to make D-20 requires high pressure and temperature of methanol. This make for a very corrosive environment and we can only get these pumps from Germany. The good news is they are on the ship and we should be in production; only three weeks late.
Nick sent the following. “I spent a bit of my holiday time looking at the Korean poultry market and thought I would share something’s I learned which might be helpful to ECOS investors. Korea produces only 80-85% of its chicken requirements. The balance of its requirements come from the US, Brazil and Denmark. The bulk of imported chicken is imported to serve quick serve restaurant business (read KFC) and the regular restaurant business. This is expected to continue over the next 5 years.
US & Brazilian chicken have an imported cost which run about 20% less than Korean chicken This gap will increase over the next five years as the tariff reduction under the US Korea trade agreement kicks in.
Korea principal export markets for chicken are Hong Kong and Vietnam. The export production is less than 10% of the total production and not expected to grow materially over the next five years.
2014 is expected to see an increase in chicken consumption due to the World Cup Soccer tournament. The measuring point for this was the 2010 World Cup. The increase will be temporary (10-15%) and fall back in 2015.
Heating and power costs of Korean chicken producers run about 5% of their total production costs. That means use of D-20 is not driven by cost benefits to the chicken farmer as it is not material but needs to be yield related.
Korean poultry production is vertically integrated. The farms tend to be part of trade groups which include the slaughter houses and producers. Business model similar to Japan.”
The Korean poultry market is regulated by the government in terms of production. When production of a variety of chicken puts pressure on price the government steps in to cut production and manage price.
Some comments. Let’s analyze the numbers. A typical facility that produces 35,000 chickens per month. The use of D-20 allows the chicken to come to market approximately 2-3 days earlier. This will get an extra yield of 1 month or 35,000 chickens. At a minimum of a 1.5% in the reduction of mortality of chickens, this represents an extra 525 chickens per month of output. Korea is eliminating the subsidy of kerosene to farmers. Without this additional cost the same farmer would save 30% on the dollar for fuel at the average monthly consumption of 15,000 liters per month. D-20 will save the farmer approximately $6,750 per month on kerosene costs.
The Poultry Association was the party that conducted the tests and is recommending D-20 to their members.
Look for some more comments on Thursday.
Michael Siegel
Chief Executive Officer
AI
