October 4, 2004

Slowdown in China's Rising Egg Prices in End-September; Prices Seen on Downward Trend in Fourth Quarter

An eFeedLink Exclusive Report  
 

 I    Egg Prices Rose 22.5% in the First Eight Months of 2004
 

Both egg production and sales in some provinces of China have been good since August.  According to the statistics released by China's Ministry of Agriculture (MOA), egg prices in some provinces have been rising since April this year and have reached its peak in early September. MOA said that China's consumer price index for the first eight months of this year was up by 4%, while prices of grains and fresh eggs rose by 27.5% and 22.5% respectively.

According to analysts, demand outstripping supply is the key factor driving up egg prices in China.  The hot weather in the summer season had negatively affected China's egg output, while on the other hand the festive celebration of the Mid-Autumn Festival in late September and the weeklong China National Day holidays in the first week of October had stimulated the demand for eggs.

Analysts attributed the significant rise in China's egg prices to the following factors: 

• Low Layer Inventory 
  
  Due to the widespread outbreak of bird flu early this year, some layer farmers in China were concerned over the possible recurrence of the virus and the instability of egg prices. As a result, they did not replenish their layer inventories regularly, and some of them even temporarily stopped layer farming for a few months since the bird flu outbreak.  These had adversely affected China's overall egg production;
   
• High Feed Prices
  
  The main ingredients of layer feed consist of corn, soymeal, lime powder and fish bone meal, with corn component at up to 60%.  Corn prices this year have been hovering at high levels compared with those in 2003, driving up egg production cost;
   
• Seasonal High Temperature
  
  High temperature during the summer season had lowered egg production and shortened the preservation period of fresh eggs.  The most suitable temperature for egg laying is in the range of 21 to 25 degree Celsius.  The high temperature this summer coupled with many layer farmers not equipped with proper cooling facilities have caused egg production to drop sharply;
  
  
• Imbalanced Distribution of Egg Supply
  
  As egg prices in the relatively developed areas in southern China had been rising continuously since April, some egg merchants in the south traveled to the northern regions to purchase eggs.  This caused a temporary shortfall in egg supply in some northern regions driving prices higher in these areas.  

II    Egg Prices Likely to Fall in the Fourth Quarter
 

Egg prices in some provinces have dropped marginally in end September. 

Some poultry farmers had made considerable profits when egg prices were on the rise since April.  Based on the high ex-factory prices of eggs in this period, profit margin for egg production could reach as high as 40% after accounting for farmland rental, utility fees, day-old-chick cultivation, and costs for vaccine, feed and labor. 

According to market participants, many poultry farmers, who temporary suspended layer farming due to bird flu outbreak early this year, have replenished their layer day-old-chick inventories in April when they saw significant rise in egg prices.  As the growth cycle of layer takes about 4 to 5 months, those replenished layers are expected to begin laying eggs around September or October. By then, egg production would have risen, and this would help ease the tight egg supply and restrain price gains. 

Corn prices in China are seen on a decline trend in the near term due to increasing supply of newly harvested corns. The likelihood of egg prices continuing to rise is slim if corn prices began to fall.  Furthermore, the cool autumn season is conducive to the increase in egg production. Generally, egg prices in China are likely to be on a downward trend in the fourth quarter of this year.