May 28, 2007

Rising pork prices a boon for China's feed producers

The rising pork prices in China can benefit the country's feed producers in giving a boost to their profit margins, traders said.

However, even as feed prices rose sales have not kept in pace, according to Chen Ke, a feed manager in China's New Hope Group.  

This is a logical reaction on the part of the market as the shortage currently is not as severe as that in 2003, which saw large scale panic buying from breeders.

The price increase in corn in early May was one major factor contributing to the rise in feed prices. The increase took about two weeks to be reflected in feed prices, Chen said.

The price adjustment did not have significant impact this time round as it was the fourth feed price adjustment since the Spring season this year, of which two were downward adjustments. However, compared to last year, this year saw a wider increase, feed traders said.

For example, the price of a 40-kg bag of compound feed grew from RMB 83 to RMB 96 this year.

An increase in meat prices caused by the live hog shortage would mean fatter margins for feed producers in the short term, traders said.
 

Higher pork prices would also led to price increases in other agricultural products, and as the outlook in the agricultural industry brightened, the outlook on feed prices would improve even more. Thus, major feed producers like Tongwei and New Hope should turn in better results in the second half of the year.

Although on the whole, increase in prices of meat products would increase margins, however, the limited number of livestock companies listed on the market meant little opportunities for equity investors, stock market traders said.