March 31, 2004

Asian Poultry Industries Struggling With High Corn Prices

Following the devastating impact of the bird flu outbreak in Asia, poultry producers now have to contend with high corn prices as they attempt to restock feed supplies. With corn stocks in China hitting new lows, other feed alternatives will have to be explored.

With corn prices hit six year highs and stocks in the all-important China market are depleted due to heavy domestic demand, Asian livestock producers have been desperate in their search for feed alternatives. Tapioca, cassava and palm kernel have proved to be popular options for feed mills desperate to keep up with demand and maintain their margins.

Trading in feed alternatives amongst the Asia Pacific nations has become fierce. Malaysia has been buying cassava from Vietnam, while Vietnam is buying up palm kernel from Malaysia. Each country is desperate to avoid the cripplingly high price of Chinese corn, which a year ago was trading at $120 a ton and now is trading at well over $200 a ton.

Mostly the alternatives feeds are less than half the price in terms of tonnage, but the problem is that they don¡¯t have the high rates of protein that corn contains. Added to that is the problem that many livestock producers are not willing to change the type of feed they are using, so the pressure looks sure to continue on both the price of corn and stocks.

The irony is that after a bumper crop in the US corn is widely available, but on top of the high global market rate, mounting freight costs has made sourcing corn feed from there even more prohibitively expensive, particularly for the Asian market.

Indeed mounting freight costs have had a considerable impact on the way that most of Asia Pacific sources its grains. For wheat supplies, the China market has also experienced low stock levels and has had to source increasing amounts from overseas. But again freight prices have proved prohibitive. Traditionally the US market has been a major source of wheat to the Asia Pacific region, but with the mounting transport costs, Australia, which is currently benefiting from bumper crops, is now proving to be a cheaper alternative.

Many industry experts believe that the only feasible alternative is that China starts to produce more corn. However, Chinese farmers are currently switching from grain crops to those that they deem to be more profitable, such as soybean and cotton. And this is still happening despite government incentives to plant more corn crops.

Under these circumstances, the proponents of GM corn crops may well find they have a better reception in the coming years, given that such crops have a significantly higher yield rate than the unmodified crops.

Either way, undoubtedly the hardest hit will be Asian poultry producers, who are already reeling from huge losses incurred from the bird flu. Now as they begin to restock increasing feed prices could be the final blow for a number of the weaker players.