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Market Reports
 
June 18, 2014
 
China Feed Market Monthly: Recovering livestock sectors, peaking aquaculture stimulate feed production   
 
An eFeedLink Exclusive 
 
 
Compared with April's moderate increase of 3.86%, the growth rate of feed production doubled in May to 7.48%.
 
Market Analysis
 
Compared with April's moderate increase of 3.86%, the growth rate of feed production doubled in May to 7.48%. Year-on-year, feed output was higher by 2.75%, the first time this year that monthly feed production exceeded that of the same period in 2013.
 
Leading the growth was aqua feed output, which soared by a robust 33.90% to 1.4 million tonnes, as the warm weather stimulates aquaculture production.
 
Broiler feed production enjoyed a strong 12.29% increment on the back of a broiler market rally. As short supply catapulted China breed broiler prices to historic highs, feed producers increased production more confidently. In contrast, layer feed registered a slower recovery even though egg prices skyrocketed to new records as well. Layer feed output was flat month-on-month, although it was a great improvement from April's decline of 4.64%.
 
With the government's intervention to procure state reserve pork, hog sector strengthened prominently in May. As prices jumped a whopping 21% within the month, feed producers were encouraged by the strong recovery to expand output, albeit at a cautious rate of 2.20%.
 
Feed costs increased during May as prices of grains surged. Corn market gained traction and rose substantially by over 3% on the back of dwindling supply. Price hikes would have greater if the government had not released reserved corn for auction.
 
Soymeal prices jumped by 4.5% as demand from the feed industry expanded while supply stayed limited due to low import volumes. As soymeal prices surged, feed millers sought to use more fishmeal, which prices were immensely cheaper by 25% on-year - a huge cost saver considering soymeal prices were a mere 1% below last May's levels. With demand soaring and the fish catch in Peru falling below expectations, prices of fishmeal surged swiftly by 15%.
 
In the feed additives markets, prices of several vitamin products which rallied in recent months, particularly vitamin A and E, gradually stabilised during May. Meanwhile, prices of folic acid and vitamin B1 surged 40% and 9% respectively as supply was insufficient to meet demand. 
 
Amino acids markets strengthened over the month on limited availability. As China's only methionine producer Chongqing Unisplendour continued to halt operation, imported products dominated the market. Prices surged 33% as distributors and traders who controlled limited supplies lifted prices relentlessly.
 
Lysine made further gains in May as demand picked up with the hog market recovering, whereas output remained low while several producers continued to hold back production. Prices increased another 18% over the month on top of the 3% increase in April.
 
Tryptophan and threonine prices increased 8% and 1% respectively over the month.
 

Table 1China's feed production in May 2014 

Region

Hog feed

Layer feed

Broiler feed

Aqua feed

Ruminant feed

Others

Total

Feed production change compared with previous month (%)

2.20

-0.76

12.29

33.90

1.18

16.70

7.48

eFeedLink's statistics

 
Hog feed
 
Hog prices recovered at a much stronger pace entering May, as the government's pork procurements took effect. Towards middle of the month, the approaching of the Dragon Boat Festival, which called for the making of dumplings, strengthened pork demand further. Supplies of hog were, however, limited throughout the month, hence pushing prices up by a whopping 22%.
 
Inventories increased, albeit at a slow rate of 0.81%, as larger farms expanded pig herds more confidently. This was, however, adequate to encourage feed millers to step up production of hog feed by 2.20%.
 
Hog feed output rose nationwide except for the southern region. The output for complete feed, concentrated feed and premixes increased 1.49%, 6.76% and 3.69% respectively.
 
Prices of complete feed increased by almost 1%, as ingredients costs, particularly those of corn and soymeal, surged over the month.
 
Layer feed
 
Surging 12% within May, egg prices hit new highs, stimulating the inventory growth of layer hens. Meanwhile, the culling rates of hens reduced sharply by over 7%, partly because broiler prices weakened toward late May, and partly due to limited unproductive layers following the high discard volumes over recent months. Layer population increased as a result, even though the growth was limited due to low chick production.
 
Staying cautious, producers of layer feed kept output flat while sales of layer feed failed to increase prominently. Complete feed output inched down 0.60%, while the production of concentrated feed and premixes dipped 1.41% and 1.33% respectively.
 
On average, prices of layer feed rose by 0.65% to RMB3,080/tonnes in May.
 
Broiler feed
 
Farmers of China breed broilers, who enjoyed record high profits during May, were more confident to expand inventories. However, due to limited chick production, broiler numbers failed to increase at a faster pace. Hatcheries that were making paltry profits were reluctant to increase output as the hot summer weather, which posed a challenge to keeping poultries healthy, usually hampered the sales of day-old chicks. 
 
Nonetheless, even as broiler inventory increased marginally, feed millers who were optimistic with the outlook of the market, produced 12% more than they did in April, while lifting prices by 0.61%.
 
Complete feed production increased 11.64% whereas the output of concentrated feed and premixes surged 19.75% and 12.08% respectively.
 
Aquaculture feed
 
China's aquaculture production expanded steadily under the warm climates. Strong growths were registered in the northern parts of the country, whereas the aquatic animal inventories in the south approached seasonal peak levels. Robust feed demand boosted output by 33.90% over the month, lifting overall production volume to over 1.4 million tonnes.
 
While the production of complete feed recorded 34% increment, the output of concentrated feed was negligible, as only producers in the northwest region were manufacturing the product. Production of premixes surged over 45%, but it should be noted that this high growth rate was based on previous month's low fundamental, and that the actual output remained limited.
 
Ruminant feed
 
Ruminant feed sector remained sluggish, seeing only a meagre 1.18% rise in feed output. Limited cattle population impeded the sales of cattle feed, which was the main component of ruminant feed.
 
Complete feed production increased 2.32% whereas those of concentrated feed and premixes were lower by 4.75% and 0.84% respectively.
 
  
Market forecast
 
May's feed production is encouraging, with a remarkable growth of more than 7%, and exceeding for the first time this year on a month-over-month comparison with 2013. However, it should be taken into account that the broiler industry was devastated by the H7N9 bird flu epidemic last May, which slashed inventories by a quarter within the months of April and May. Indeed, despite a higher May feed output, the overall feed production volume in the January-May period remained below 2013's level - which means that China's poultry industry is still in its early stage of recovery even though prospects are much brighter now. This untimely recovery just prior to summer, when inventory building interest is traditionally weak due to high mortality rates under the hot weather, and a lack of chicken demand from June through August, will hamper the growth of broiler population and subsequently feed production.
 
In the hog sector, slack pork demand during summertime will limit the upward potential of market. Smaller farms will hesitate to increase herd size even though they should prepare for the pre-National Day and Mid-Autumn Festival markets.  With population expansion slow, feed production will increase moderately at best.
 
With the broiler and hog sectors facing limitations, aquaculture will be leading the growth of feed production in June. However, as aqua feed output accounts for less than 20% of China's total feed production, the overall rise in feed production will be restricted, although expansion is poised to be faster than in May.
 


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