May 18, 2009

Taiwan's soy import forecasts for MY2008-09 and MY2009-10 remain at the same level as MY2007-08, in the range of 2.1 to 2.2 million tonnes, in line with continued weak domestic feed demand driven by declines in its two important livestock sectors - swine and poultry, according to a US Department of Agriculture attache report posted Friday (May 14) on the Foreign Agricultural Services Web site.

Taiwan has been, and remains, the fourth largest export market in the world for US soy. In MY2007-08, Taiwan imported 2.148 million tonnes of soy, 88 percent of which were supplied by the United States, a US$952 million market.

Taiwan's demand for soy is met almost entirely by imported supplies. Its demand for soy meal and oil are also highly dependent on local supplies crushed from imported soy. In MY2007-08, locally crushed soymeal accounted for 99 percent of the Taiwan total soy meal market and locally crushed soyoil 90 percent of the Taiwan's total soy oil market -- although soy oil only enjoyed 59 percent of Taiwan's total vegetable oil market. Approximately 90 percent of Taiwan's feed production goes to swine and poultry production, 45 percent each, with most of the rest going to cattle and fishery production. In addition, the Taiwan authorities placed an exemption on the 5 percent VAT for soy (and three imported grains) starting from March 10, 2008 to help local crushers cope with current market and economic conditions. Local press has reported reductions in work hours and increased layoffs, which negatively impacts local markets in all sectors. When the market condition is unpredictable, as in the current global economic downturn, a conservative consumption attitude is customary in Chinese culture. As a result, in 2009 the Taiwan authorities reduced their domestic swine production target by 2.1 percent from the previous year, to 880 million head, and the poultry production target by 1.9 percent, to 363 million birds. Feed demand is estimated at 7.2 million tonnes for 2009, compared to 7.28 million tonnes in 2008, 7.484 million tonnes in 2007, and 7.641 million tonnes in 2006. This reduced demand trend can be traced directly to recent price shocks in the swine production sector and uncertainty in the poultry sector, as illustrated below. In the swine sector, there was an oversupply in 2006 and hog prices fell below NT$5,000 per 100-kg head. In response, the industry started cutting hog production in 2007 by culling sows and young pigs. During the 4th quarter of 2007, world grain prices began to increase rapidly while domestic hog prices were below the break-even point. A serious hog production reduction scheme was implemented to support prices and help industry survive. At the same time, the local hog sector pressured COA to ban the usage of ractopamine in meat animal production on Taiwan. The industry succeeded and Taiwan has banned ractopamine since October 2006, which later interrupted US pork exports to Taiwan. In part due to these developments, local hog prices rose to NT$7,557 per 100-kg head in June 2008 and since then stayed generally above NT$6,000 per 100-kg head, a self-claimed break-even point for the industry. Despite this, domestic production remains below earlier levels, thereby reducing feed demand. Meanwhile, Taiwan is in the final phase of its Food and Mouth Disease (FMD) eradication program, but encountered its first outbreaks of the disease in nearly a decade when FMD was detected in three herds in two counties earlier this year. This led to a prohibition on imports of Taiwan pork in Singapore and it is now anticipated that Taiwan will be unable to declare itself FMD free as hoped over the next three years. This is a major setback for an industry with hopes for restarting their once-extensive export business to Japan once FMD is eradicated. Whether or not Taiwan can eradicate FMD longer-term remains to be seen, but hog production in 2010 is anticipated to continue at lower levels. With respect to the poultry sector, Taiwan has proposed a ban on marketing freshly killed chicken in traditional wet markets since 2007 aiming to prevent an Avian Influenza (AI) outbreak. In late March, COA announced its intention to move ahead with the ban but met further resistance from wet market poultry vendors while determining that the domestic processing industry needed more time to be ready to handle the additional market demand. As a result, further action has been postponed for several months or more. If the ban takes effect, the raising of coloured birds, which currently account for 40 percent of Taiwan's total poultry production, is likely to be negatively impacted, and imported poultry meat should find new opportunities in the market. In another key development for US soy trade with Taiwan, the percentage of exports sold in containerized shipments is anticipated to decrease from the previous year's high of seventy percent due to the decrease in availability of empty backhaul containers as Asian exports to the US suffer during the current global economic downturn. Trade sources indicate this may give an import opportunity to South American soy, with the possibility of reducing US share to about 75 percent in the current year from the 88-percent shares held in 2007 and 2008.