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July 23, 2015
 
China Feed Market Monthly Review: China feed sector growth anaemic as livestock feed demand shrinks
 
An eFeedLink Exclusive
 
 
With all sectors of livestock farming shrinking in feed output, China's production in June increased at a slower pace of 2.4%.
 
 
Market Analysis
 

TableChina’s feed production in June 2015

Region

Hog feed

Layer feed

Broiler feed

Aqua feed

Ruminant feed

Others

Total

Feed production change compared with previous month (%)

-0.79

-2.20

-1.80

29.77

-3.10

6.03

2.40

eFeedLink’s statistics

    
Hog feed production continued to shrink during June, albeit at a slower pace of 0.79%, as inventories stayed flat with piglet production critically low.
 
In the poultry sector, layer stocks inched up a nominal 0.14%, putting a halt, nevertheless, to the sliding inventory that has shrunk over 2% between March and May. However, that was insufficient to boost the demand for layer feed, hence prompting producers to cut output by 2.2%, which was higher than the 1.2% reduction during May. Meanwhile, a substantial fall in broiler chick procurements, coupled with higher releases, stalled the recovery of the sector, which saw inventories expand in the three months prior to June. Broiler feed producers cut production by 1.8% as a result.
 
As expected, the aquaculture sector continued to expand stimulating aqua feed output by 29.77%. The growth pace was slower than in May, which recorded an increment of 38%, partly because June's growth was based on a substantially higher output level. Another reason that hampered the expansion of aqua feed output was the floods and rainstorms in the eastern and southern regions, which disrupted aqua farming considerably.
 
With all sectors of livestock farming shrinking in feed output, China's production in June increased at a slower pace of 2.4%, compared with May's 3.9% rise.
 
In the feed ingredients markets, the costs of corn stayed flat, inching down a nominal 0.5% as demand was limited while feed millers withheld buying while the government continued to hold auctions for state reserves corn.
 
Soymeal price slid further during most parts of the month amid excess soy supplies globally. However, during late June, CBOT soy futures prices rebounded as the production of soy in the US was threatened by harsh weather conditions. Consequently, soymeal prices in China rebounded 2.8% during the last week of the month; but that was far insufficient to pull the overall monthly price higher and on average soymeal prices dipped over 7% on-month. Compared with June 2014, soymeal prices have plunged a tremendous 33%.
 
Although aquaculture sector expanded robustly, the prices of fishmeal continued to slide at a faster rate of 8.5%, which was double the pace of fall during May. The main factor for the price plummet was a weak Peruvian market, which saw prices tumbled over 7% as the country was on its course to fulfil its fishing quota for the season while demand was slack.
 
Meanwhile, whey prices plunged to multi-year lows, after losing 13% in the month of June alone, as global dairy prices continued to sink amid excess output. By end of June, prices were a whopping 37% compared with the same period a year ago. Currently, most traders were incurring a loss as the demand for piglet feed, and subsequently whey, stayed poor.
 
In the feed additives markets, prices of amino acids dropped further, with tryptophan leading with a 22% tumble due to excess supplies. Methionine prices softened 11% as the feed producers limited poultry feed output while the sector underperformed. Although prices of lysine stabilised while those of threonine picked up after middle of the month, the costs of the two products were still lower by 1% and 5% respectively compared with May.
 
Vitamin markets performed relatively better during June, as tight supplies drove up the prices of vitamin B2, vitamin C and niacin by 7% to 10%. Products such as vitamin B1, B6, B12 and K3 and folic acid registered a smaller rise of 2% to 3%. Nonetheless, a handful of products, namely vitamin E, inositol, choline chloride and biotin, with abundant supplies saw prices fall 1% to 5%. With exception, prices of vitamin K3 fell by a greater margin of 10% as buyers held back procurements while the product remained relatively expensive.
 
Prices of trace minerals remained unchanged during the period in review.
 
In general, the costs of feed ingredients were lower during June.
 
Hog feed
 
Inadequate supplies continued to perk up the prices of hog in China, which gained another 6% following May's 9% surge.
 
However, the robust hog market failed to stimulate a rise in feed production for the sector. As the current rally in hog prices was due to insufficient supply rather than buoyant demand, hog feed consumption was indeed weaker despite soaring hog prices. Hence, feed producers manufactured 0.79% less hog feed in June, with the production of complete feed, concentrated feed and premixes for the hog sector shrank 0.38%, 2.48% and 0.12% respectively.
 
Feed prices dropped another RMB10 to RMB3,220/tonnes, as producers lowered prices while saving substantially on soymeal costs.
 
Layer feed
 
Layer framers incurred losses entering June, while egg prices fell further by over 4%. Nonetheless, layer inventories remained stable, as the culling of aging hens reduced prominently by 16% compared with May. In addition, farmers expanded the stocks of pullets to replace the high quantity of old layers discarded over the past few months.
 
Overall, the production of layer feed shrank 2.20% over the month as layer feed producers remained cautious. Concentrated feed production dived 10% while producers in all regions cut output. In comparison, the production of complete feed dipped a modest 1.31%, with the output in the northern parts of China falling over 5%.
 
Only the production volume of premixes for layer increased, by 3%, during the month of June.
 
As the demand for layer feed was weak, producers cut prices by more than 1% in a bid to entice buyers.
 
Broiler feed
 
The expansion of broiler inventories stalled in June, with broiler number decreasing 0.56% on-month.
 
AA broiler prices started to pick up during early June amid tighter supplies but the early rally lost momentum. Although falling layer release rates helped unwind the previous month's deflation, broiler prices remained below May levels. Meanwhile, prices of China breed broiler were range bound during most parts of the month, surging only during late June on tight supplies. On average, prices of AA species and native breed broiler were both lower by over 3%.
 
Although the production of concentrated feed increased more than 1%, premixes output stayed flat whereas that of complete feed, the single most important feed type, decreased 2%. Overall, feed producers cut output of broiler feed by 1.8%, while lowering prices by 0.60% to promote sales.
 
Aquaculture feed
 
Warmer summer weather supported the recovery of the aquaculture sector. However, several provinces in China, including major aquaculture production provinces such as Guangdong, Fujian and Hunan, continued to be troubled by floods and rainstorms. This hampered the growth of aqua feed to some extent, limiting the rise in feed output to below 30%.
 
However, year-on-year, aqua feed production has increased 5% during June. And with the production of all major livestock lines diminishing, aqua feed was the major contributor to June's feed production increment.
 
Ruminant feed
 
The demand for ruminants feed shrank 3.10% on-month and was flat on a year-over-year comparison.
 
As the prices of global dairy products kept falling, China's dairy industry faced strong challenges while more dairy products were imported. With the demand from the dairy sector falling, producers produced less ruminants feed during June.
 
Specifically, the production of completes feed dropped 5% whereas those of concentrated feed and premixes rose by 2% and 1% respectively.
 
 
Market forecast
 
Aquaculture feed will continue to be the major driver of feed production growth in July, as the sector expands towards its seasonal peak despite disruptions of aqua farming in some regions. However, the production growth will slow down as feed millers anticipate demand to wane gradually entering August.
 
Hog sector will remain strong with availability insufficient. Yet, the population of hog is unlikely to expand meaningfully with piglet production critically low. Although sow inventories have stabilised and even recovered in some regions during June, the recovery will only translate to higher piglet reproduction several months later. In fact, piglet prices have surged more than those of hog over the past few months due to severely insufficiency. Hence, hog feed production is expected to increase marginally at best during July, mainly because farmers are holding back releases in anticipation of soaring prices.
 
For the poultry markets, broiler prices should rise further without layer farmers dumping aging layers in the market, and with consumers buying more chicken as pork becomes more and more expensive. Egg prices are expected to rebound as well on tight supplies, the result of high rejection rates over the past several months.
 
This should boost the confidence of poultry farmers to expand inventories. However, as hatcheries have cut production and culled breeders recently to minimise losses while chick prices hit rock bottom, it remains uncertain whether the population of broiler and layer will recover in July.
 
Hence, it is likely that China will produce less feed in July than in June, although the more likely scenario is a slow growth of 1% to 2% in feed production.
 


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