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December 17, 2014
 
China Feed Market Monthly Review: Chinese feed producers cut output as livestock sectors show no recovery
 
An eFeedLink Exclusive
 
 
Overall feed growth registered a shaper fall of 9.74%, as hog and poultry sectors failed to recover while aquaculture farming shrinks at a faster pace.
 
 
Market Analysis
 
As Chinese New Year falls on February 19 next year, a couple of weeks later than usual, China's livestock markets, which traditionally shows signs of recovering towards late November, remained weak throughout the month. This was not helped by the uncertain economic outlook of the country, which decimated meat consumption and hence the stockpiling interest of slaughterhouses and meat processors. As hog farmers cut feed purchases while weak prices squeezed profitability, feed producers reduced production for the sector by 3.43%, almost twice October's contraction of 1.84%.
 
Apart from the problems of a delayed Chinese New Year and weak consumption faced by the hog market, the broiler market was under piling pressure as reports of human infections of H7N9 bird flu limited the demand for chicken products. Even though broiler inventories continued to rise over the month, farmers were reluctant to increase feed stockpiles as the outlook of the industry was bleak. Confidence dampened, feed millers cut broiler feed output by 1.48% in November.
 
The layer sector continued to be plagued by the threat of a bird flu epidemic as well. Layer hens that were inflicted with the disease reported 20% to 30% reduction in egg production. With the farming conditions during winter challenging, layer producers were not keen to expand inventories. Consequently, layer feed production continued to fall, by 1.87%, as feed millers limited output.
 
As November's weather temperatures dropped swiftly, particularly in the northern parts of China, aquaculture production diminished rapidly, dragging down feed output by a whopping 57.49%. Compared with its yearly peak of 2.8 million tonnes in August, aqua feed production has shrunk by over 70% in November.
 
With the livestock market showing no signs of recovering, the demand for corn and soymeal remained slack. Ample availability of corn and lacklustre demand from the feed sector continued to weaken prices although losses were limited as corn farmers held back releases with prices below expectations. Towards end of the month, demand showed signs of improving but was too weak to reverse the downtrends in prices. On the bright side, the 1.4% price fall in November was a great improvement from October's 8% tumble.
 
Soymeal market remained under the pressure of a bumper soy harvest in the US. Soy futures prices moved within a narrow range amid low buying interest, providing little direction to Chinese crushers and soymeal buyers. With demand from the feed sector slow, prices inched lower by 0.74%, considerably milder than October's 1.5% slide.
 
With aqua feed demand plummeting, prices of fishmeal were flat although Peru was likely to ban fishing altogether for the upcoming season.
 
Meanwhile, in the feed additives market, prices of amino acids were mostly lower during November. Methionine prices, which surged rampantly over the past few months, continued to rise during early parts of the month; but after mid-November, prices softened as a local producer began trial production in its new plant. By month's end, methionine prices were lower by almost 2% compared with late October prices. However, as prices remained around RMB100/kg with spot supplies tight, feed producers, who limited poultry feed production anyway, continued to withhold purchases.
 
Lysine prices dropped 5%, partly due to slack hog feed demand, and partly due to abundant availability as two new plants commenced production lately. The soft soymeal market contributed to the price weakness of lysine as well, as feed millers used more soymeal and limited its inclusion rates.
 
Meanwhile, threonine prices dipped 4% as feed producers continued to cut the usages of wheat with corn supplies ample.
 
The only main amino acid product which surged in prices was tryptophan. As threonine prices jumped over the past couple of months, several tryptophan producers with the versatility to manufacture threonine as well switched production. This resulted in tight tryptophan supplies during November, which was exacerbated by a rise in the usages of corn amid increased availability. Hence, tryptophan prices gained 24% in the month of November.
 
Prices of vitamin products were mostly stable to lower amid subdued demand. Folic acid prices remained firm, but lacked the strong momentum seen in previous months as buyers were taken aback by the exorbitant prices. Only biotin registered a substantial price gain, climbing 16% amid tight supplies.
 
On the whole, feed producers enjoyed lower raw ingredients costs, even though the savings were much smaller compared with the previous month.
 

Table 1China's feed production in November 2014

Region

Hog feed

Layer feed

Broiler feed

Aqua feed

Ruminant feed

Others

Total

Feed production change compared with previous month (%) 

-3.43

-1.87

-1.48

-57.49

10.82

11.43

-9.74

eFeedLink's statistics

 
Hog feed
 
Hog inventories dipped almost 1% in November as farmers were unwilling to expand inventories amid bleak market outlook. When hog prices rebounded during early November, farmers were encouraged by the long-awaited price rise, but it proved unsustainable and pared all gains by month's end. On average, monthly price fall reduced to 1%, from October's considerable 4.6%.
 
Feed producers, who lost confidence in the hog market, slashed hog feed production by 3.43%, with the output of complete feed and premixes shrinking 3.74% and 8.32% respectively. Only the production of concentrated feed expanded over the month, but by a paltry 0.90%.
 
With feed ingredients prices sliding over the past few months, feed manufacturers gave more discounts during November. Prices of complete feed fell RMB20, from RMB3,420/tonne, to RMB3,400/tonne, lower by 0.58%.
 
Layer feed
 
Egg prices dropped another 3% in November, following October's and September's 4.8% and 3.5% slide. Accumulatively, egg prices have lost a hefty 11% from August peak. This, coupled with the threat of bird flu disease, which weakened layers' egg production rates by 20% to 30%, dampened layer farmers' enthusiasm in farm expansion. Moreover, after prices of broiler tumbled, the profitability from selling old layers shrank prominently, resulting in a sharp fall in layer rejection rate over the month- the need to take in pullets was therefore drastically reduced as culling rates plunged.
 
All the above factors worked to limit the layer inventory growth during November. In response to the slack feed demand, feed producers cut production by 1.87% on-month. This was a whopping 17.52% below November 2013's production volume.
 
Other than concentrated feed, which registered a modest growth of 2.61%, complete feed and premixes output diminished by 2.42% and 7.60% respectively.
 
Prices of complete feed for layers were lower by 0.65% or RMB20, averaging RMB3,050/tonne.
 
Broiler feed
 
Broiler population, which was expected to increase significantly in November due to the preparation for early 2015's pre-Chinese New Year market, was disappointing at less than 2%. The likely bird flu outbreak had put farmers, especially China breed broiler farmers, on the defensive. Memories of damages due to the shutdown of live poultry were vivid to the China breed broiler farms.
 
With broiler inventory expansion falling below expectation, feed producers unsurprisingly cut output by 1.48%. Year-over-year, broiler feed output was lower by over 12%. Production of complete feed dropped 2.38% while that of concentrated feed shrank 9.94%. Bucking the trend, the output of premixes surged an impressive 9.50%, but could not reverse the fall in overall production.
 
Meanwhile, complete feed prices averaged RMB3,420/tonnes, which was 0.58% lower on month.
 
Aquaculture feed
 
As winter began, aquaculture production halted in the northern half of the country, prompting feed producers to stop aqua feed manufacturing altogether or slash output by 80% to 90%. Even in the warmer southern regions, aqua farming dwindled prominently, dragging down feed output by over 40%.
 
On average, producers churned out 57.49% less aqua feed compared with the previous month, with production of complete feed and concentrated feed plunging 58% and 83% respectively.
 
Ruminant feed
 
Ruminants feed output increased a prominent 10.82% during November, which was over 6% higher than a year ago. However, accounting for less than 5% of the country's feed production, the rise in ruminants feed output did little to ease the downward pressure on the industry.
 
 
Market forecast
 
Hog industry will recover gradually with the demand for pork warming up during winter, and the preparation for the pre-Chinese New Year market allowing no further delays. Prices will increase, lifting the returns and strengthening the confidence of hog farmers, who  to increase feed stocks.
 
The broiler sector will see stronger demand as well, barring any epidemic outbreak. Prices should rebound from yearly lows, helping to hold feed demand stable. For the layer sector, limited layer population, in conjunction with reduced egg production rates, will underpin egg prices amid tight supplies. With farmers more optimistic in the outlook of the markets, poultry feed demand should improve, supporting output to increase during December.
 
On the other hand, aqua feed production will continue to diminish rapidly; but accounting for only 7% of total feed production, it will not pull down overall output so long as hog and poultry feed volumes expand. A more important factor that will limit the growth of feed output will be the disinflationary pressure in the country, with China's consumer price inflation (CPI) rate falling to a five-year low of 1.4% during November. As consumers are more cautious with spending, this could limit the recovery in hog and poultry markets, hence impeding the sales of animal feed and production eventually. 

 


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