Has the price of inulin given you the blues? Icon Foods has the perfect solution for you.

The inulin market is still in a free fall. Just how much are you willing to pay for inulin? Double the current price? Triple? Icon Foods is not willing to let you pay such obscene premiums, no way! PreBiotica Oligofructose has all the functional and nutritional savoir faire of inulin paired with pricing that won’t break the bank. PreBiotica Oligofructose is the perfect drop in solution to replace inulin.

Inulin and oligofructose (FOS) have a great deal in common. They’re both considered dietary fiber by the FDA and pass through your small intestine undigested. They’re both excellent sugar replacers, fat replacers, texturizers, and sources of high fiber bulk. They both improve gut health by turbocharging your microbiome. In fact, when you see and taste them side by side, they are virtually indistinguishable from each other, and there is a very good reason for that – oligofructose is a subset of inulin.

It is not often that food manufacturers have the opportunity for flexibility in ingredients. It is easy to become a slave to the ingredient deck. PreBiotica oligofructose can be labeled as a pre-biotic fiber. And guess what? So, can chicory, Jerusalem artichoke and agave inulins. What does this mean to you? Flexibility baby! You can pivot between them all depending on supply chain and pricing (double check this with your compliance team of course). This is the sound of sweet freedom ringing in your ears. You’re welcome!

Icon Foods is well positioned with PreBiotica oligofructose (FOS). We invite you to request a sample and give it the Pepsi Challenge against what you are using now.

Icon Foods is here to help.

Intelligence Update

From the Desk of our CEO

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CEO of Icon Foods, would like to provide you, our collaborators, with the most timely intelligence to help you navigate your way to success.

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Market Intelligence Report – 2022 Q2 Supply Chain Projections

Market Intelligence – Quelling Uncertainty
I’m going to forgo all the cheeky whit and get right to the point. What the hell is the world coming to? I honestly didn’t see much of this coming. Well, at least some of it. More [1]COVID spikes in China and the Zero COVID response. The war in Ukraine, although it was obvious something was going down during the Winter Olympics. Alas, here we are playing another game of supply chain whack-a-mole.
The biggest questions I am getting from customers is not so much price related but, stability related. I am finding manufactures just want stable and reliable pricing over the next year so they can stabilize their COGS. I get it. I have a lot of ideas around this, and you should feel free to reach out to me directly about this matter.

There are a lot of moving parts in pricing right now. It is very true that the price of raw ingredients has come down in some areas, mainly erythritol but, we are still dealing with instability in logistics, those damn tariffs and new COVID variant loaming over us.

I have mostly good news. So let’s get started.

The days of $7.00 per KG or higher erythritol are behind us. The question is for how long? While the price was sky high, there were several new players in the market that moved their manufacturing from what they were making to making erythritol to capitalize on the market. The result was a market flush with erythritol. We have vetted most new folks on the block. Some passed our rigorous vetting process others didn’t. We have been able to leverage down the cost of erythritol to historic lows. The rub is logistics which is expected to reach an all-time high of [2]40.9% in Q2 2022 and the [3] 25% Trump era tariffs, which look like they will be around for another six months at least. From my perspective these punitive tariffs have only punished the US consumer because trade with China is at an all-time high.

At present erythritol prices are at a three-year low. However, once you add in logistics and of course tariffs, prices are still high. Many manufactures of corn and starch derived ingredients, specifically in China, pivoted to erythritol manufacturing. This created a bit of a glut however this will not be the case for long based on corn prices and an imminent corn shortage. I would watch the erythritol and corn derived ingredient market with a keen eye and hedge it if you can. This market could suddenly rise 20% later this quarter. We have seen in the past how this can happen on a turn of a dime.

Going forward cheap erythritol is not going to last forever. The substrate to effectively make erythritol is glucose and the most efficient source of glucose is corn. Last year the US had a banner corn crop. If you go back to 2020 you might remember that China bought almost all of the US corn stores to be used as animal feed because in 2019 that had to euthanize 90% of the hogs in China because of H1N1 (swine flu). China has normally sourced most of their corn from Russia and Ukraine. Doh! I think you can see where I am going with this. Russia and Ukraine collective make up about 17% of the world’s corn supplies. If China is not able to count on Russian or Ukrainian corn, then they will have to go to the US. Side note: [4]Ukraine will be moving most of its crops to wheat this year to head off a famine in eastern Europe but, more highly impacted with be Africa. Back to the US corn crop. Because Russia’s invasion of Ukraine and the sanctions that followed have significantly increased the price of natural gas — a key ingredient in fertilizer used for farming — and [5]rocked the world’s supply of fertilizer. Russia and its ally Belarus, two of the world’s largest exporters of fertilizers, are being removed from the global supply chain as the United States and its allies press economic sanctions. Because of these high fertilizer prices US farmers and as well as famers across the globe have moved around [6]4% of their corn crops to soy since soy requires less fertilizer. Collectively the world can expect around a 20% decrease in corn, and this will reflect in the price of corn derived glucose and ultimately trickle down to the price and the stability of erythritol, polyols in general and anything made with corn which is most things. We can expect to see the market shift in late Q2 or early Q3.

The price for allulose is still high however, because there are several new high-quality producers of crystalline allulose there is strong downward pressure on pricing. Prices are down about 18% over last quarter. This might be a market worthy of hedging since this is a corn derived product. Additionally, the conversion from glucose or starch in not very efficient yet, so pricing could move out of reach with the price of corn. I would look for this early Q3 of this year. However, the word around the sewing circle is Novasep has IP that makes they process much more efficient, and they are actively licensing that IP on the downlow. This is just a rumor. If this becomes reality, we may see price normalization in Q3 of 2023

In Q1 of 2022 we saw a significant jump in stevia pricing. This followed a jump in monk fruit pricing. This very well could be artificial since we have seen a pull back and stabilization in the past month. A new harvest will be expected in late Q3 of this year and there is reason to believe we will see downward pressure on pricing or worst-case scenario flat pricing.

Monk Fruit
Monk fruit remains the belle of the ball for natural high intensity sweeteners. There was a significant spike in price in Q4 of 2021 and another jump in Q1 of 2022. Since this time, we have seen slight downward pressure or pricing but, mostly stabilization. The harvest is in late Q3 early Q4. I am projecting a selloff in late Q3 as supplier try to move remaining stocks. Prices are stable right now but, there will be a buying opportunity in Q3. Stand by for this.

Xylitol prices have been coming down and are stabilized. We get a lot of question about why xylitol is so expensive. It’s the water. I require a lot of water to get the d-xylose out of the corn cobs and corn by products and there is a heavy tax on water usage in China. The majority of xylitol is derived from cobs not birch as some people have been lead to believe and since this is a corn derived ingredient it will rise and the price or corn and availability wains. This would be an ingredient worthy of hedging right now since a price spike is almost eminent in Q3.

All forms of inulin a still very pricey but, particularly chicory root. There just isn’t enough chicory and the war in Ukraine will not help that either. Jerusalem artichoke and agave inulin are certainly stabile but pricey. We have moved many of our customers to FOS. While FOS may not have the jelling properties of chicory, Jerusalem artichoke or agave, mostly because of chain length, FOS still holds up well in most processes and is a fantastic prebiotic fiber. Mixing FOS with soluble tapioca fiber will give you excellent gelling and it stabilizes whatever potential gastro-intestinal that may occur from too much dietary fiber.

Most of what I needed to say about FOS is in the inulin paragraph. Icon Foods is well stocked and well position with FOS. The price is very good and can save manufactures money over inulin. One of the best value propositions of FOS is labeling. It shows up well on the NFP but, also gives you flexibility on the ingredient statement when called out as prebiotic fiber or even FOS because when the market eventually shifts in the next 3 years when Beneo finishes their inulin plant you can go back to inulin without having to change all your packaging. Food for thought when considering your fibers.

Soluble Tapioca Fiber
Soluble tapioca fiber is the gold standard for fiber from an Icon Food prospective. The price will not be driven up by the corn market. It is not manufactured in China thus not subject to the 25% tariff. Functionally is in an RS4 resistant dextrose or resistant starch that adds fiber and works well in keto, low carb and applications where fiber is needed to contribute to mouthfeel. Icon Foods is very well positioned in soluble tapioca fiber and the price is much lower that soluble corn fiber and you won’t have “corn” in your ingredient deck.

Sunflower Lecithin
Icon Foods does use sunflower lecithin in our chocolate applications. There is an imminent shortage and I mean massive shortage of sunflower lecithin. By and large there will be [7]no sunflowers planted in Ukraine this year. They will be planting wheat. Fortunately, Icon Foods got very ahead of this situation, and we are very well stocked in chocolate chips. However, we are not sure how long we will be well positioned. If you use our chips, I suggest you lock these down immediately.

Logistics is a major contributing factor to the high price of ingredients. Driving these costs are fuel and the war in Ukraine has driven fuel costs up.

Weekly average on-highway diesel prices reported by the EIA peaked at $5.25 per gallon the week of March 14, up 67% from a year earlier. Prices in the week of April 11 had pulled back to an average of $5.07 per gallon, still up 62% from a year ago.

Higher fuel costs are passed on to shippers by carriers. In the trucking industry, the surcharges are set by individual carriers and can vary widely. In the rail industry, the surcharges are based on the EIA weekly average on-highway diesel price and are more formalized but still vary and are adjusted monthly. Railroad fuel surcharges in April are zero for Norfolk Southern, 39¢ per car per mile for Burlington Northern and Union Pacific, 45.45¢ for Canadian National, 48¢ for Kansas City Southern, 51¢ for CSXT, and 54¢ for Canadian Pacific. The Union Pacific Railway posted fuel surcharge for April at 39¢ per mile per car, for example, compared with 15¢ in April 2021, and will be 61¢ in May compared with 22¢ in May 2021.

If you extrapolate a trendline from this data, it is somewhat easy to predict that fuel prices will start normalizing in the next six month. Additionally, the Biden administration has opened drilling in public lands and a few weeks ago they [8]tapped the strategic reserves. This will continue over the next six months and should keep downward pressure on fuel prices.

Just about three weeks ago the [9]Biden administration reinstated 352 product exclusions from the Trump era tariffs on China. Unfortunately, many food ingredients didn’t make it on the list. There was an interesting opinion piece in the [10] Wall Street Journal suggesting cutting the tariffs could lower inflation by 1.3 points. Research from the Peterson Institute for International Economics shows that decreasing tariffs by 2 percentage points could reduce inflation (as measured by the consumer price index) by 1.3%. Much of the United States’ current tariff policy comes from the Donald Trump administration’s trade war with China, during which the U.S. placed 25% import duties on some goods. We could be at a tipping point with consumers and this pressure will likely exceed the pressure the Biden administration is under to callout China in their abysmal human rights policies as well as their support of Russia. China would like to normalize trade with the US but, the tariffs haven’t really done much damage, if any to China’s economy. They did that all on their own. I would give it a 75% chance that we will see the tariffs come off in the next six month. We will keep you posted.

There could be some rocky roads ahead in food manufacturing. We have seen this before and we have endured. Now that you have decent visibility on potential market spikes and shortages, I would make sure you contract your raw goods as much as you can to avoid what could potentially be coming.

Thank all of you for your kind comments regarding my last market intelligence report. That means a lot but, what would even mean more is if you told me what I can do better and how Icon Foods and I can be a resource for you.

Thank you for your continued support.

[1] https://www.theguardian.com/world/2022/mar/13/china-battles-worst-covid-outbreak-for-two-years-as-cases-double-in-24-hours
[2] https://www.globenewswire.com/news-release/2022/04/12/2421165/0/en/AFS-Logistics-releases-April-2022-Cowen-AFS-Freight-Index-Rising-fuel-will-drive-higher-transportation-costs.html
[3] https://www.scmp.com/economy/china-economy/article/3171736/china-welcomes-us-tariff-exemptions-symbolic-move-fails
[4] https://farmpolicynews.illinois.edu/2022/04/ukraine-increases-spring-planting-forecast/
[5] https://komonews.com/news/nation-world/record-high-fertilizer-prices-threaten-food-supply-risk-sustained-inflation-natural-gas-potash-price-index-farmers-argriculture-united-nations-russia-sanctions-ukraine
[6] https://www.bloomberg.com/news/articles/2022-03-31/farmers-to-slash-corn-plantings-amid-record-fertilizer-prices
[7] https://www.euronews.com/2022/04/15/kitchens-feel-the-heat-as-ukraine-war-sees-the-price-of-sunflower-oil-soar
[8] https://www.nytimes.com/2022/03/31/business/energy-environment/biden-oil-strategic-petroleum-reserve.html
[9] https://www.reuters.com/world/china/us-reinstates-352-product-exclusions-china-tariffs-2022-03-23/
[10] https://www.wsj.com/articles/cut-tariffs-to-help-inflation-and-ukraine-joe-biden-trade-policy-peterson-institute-study-11649888739

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