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December 18, 2014
China's annual feed output falls as livestock sector misses cyclical late year recovery
Cornered by bird flu and unusually weak late year swine output, China faces an unprecedented second consecutive yearly fall in feed production.
by SHI Tao and NGOH Seng Keong
An eFeedLink Hot Tpoic
After falling 3% below 2013 levels in the first half of 2014, weak late 2014 livestock markets will probably see China's annual feed output fall by at least 2%. It will be a second year in a row that the country's feed output has fallen -something never seen since the country liberalised its economy over three decades ago.

As Chinese New Year falls on February 19 2015, several weeks later than usual, livestock markets, which traditionally show cyclical strength in November, remained unusually weak throughout the month. This was not helped by a worsening macroeconomic outlook. It decimated both meat consumption and the stockpiling interest of slaughterhouses and meat processors, which is usually strong at this time of year.
Slack hog market, bird flu tank feed demand
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 feed consumption arising from slack hog demand, H7N9 jumped the species barrier to infect scores of people. This placed severe deflationary pressure on the broiler market, depressing chicken meat sales at a time of year when they usually rise sharply.
With broiler inventories rising amid wilting demand, poultry farmers were reluctant to increase feed stockpiles. Confidence took a hit and feed mills 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. Layers infected by bird flu suffered a 20% to 30% reduction in egg production. With 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.
The approaching winter caused a sharp drop in temperatures, particularly in northern China, where aquaculture output underwent its seasonal shutdown. It predictably caused aqua feed output to fall 57.49% from October's level. 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. Although ample post-harvest corn supplies and lacklustre feed demand weakend prices, losses were limited as corn farmers held back releases when prices fell below their expectations.
In the last month of the year, demand showed signs of improving but was too weak to reverse the market downtrend. On the bright side, a 1.4% price fall in November was a great improvement from October's 8%, harvest time tumble.
Cheap feed grains, expensive fishmeal
Pressured by a record US soy harvests, soymeal prices stayed stable with a tendency to inch downward. Soy futures prices moved within a narrow range amid weak buying interest, providing little direction to Chinese crushers and soymeal buyers. Slack, but slowly recovering feed demand pushed down a slight 0.74%, significantly less than October's 1.5% slide.
With Peru banning fishing in its depleted waters, fishmeal prices set a new record near US$2,400/tonne, with domestic inventories falling below 60,000 tonnes by the year's end. This is far below the 130,000 tonnes held a year earlier, as buyers balked at super-high fishmeal prices and refused to restock inventories. 
Even the formerly inflationary feed additives market softened. Amino acids were mostly lower. Methionine prices surged rampantly in the second half of the year and kept rising in early November, but fell after mid-month, when a domestic producer opened a new plant and commenced trial production runs.
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 saw bird flu limiting poultry inventory growth. This motivated them to withhold methionine purchases and put downward pressure on prices.
Partly due to slack hog feed demand, and also due to abundant availability after two new plants commenced production, lysine prices fell 5%. The soft soymeal market also undermined prices, as feed millers used more soymeal and were thereby able to reduce lysine inclusion rates.
Similarly, threonine prices dipped 4% as feed mills used abundant corn supplies to curtail their wheat inclusion rates
Trytophan was only amino acid product to defy the deflationary trend. 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, 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 1  China's feed production in November 2014 


Hog feed

Layer feed

Broiler feed

Aqua feed

Ruminant feed



Feed production change compared with previous month (%)








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. November's average monthly hog price fell 1%, a smaller loss than October's far greater 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% following September and October's respective 3.5% and 4.8%, egg prices fell another 3% in November. In all, egg prices were down a hefty 11% from August all-time record. This, coupled with the threat of bird flu disease, which weakened layers' egg production rates by 20% to 30%, dampened layer farmers' enthusiasm for expanding flocks.
Moreover, after broiler prices tumbled, formerly high returns from selling old layers narrowed considerably. This resulted in a sharp fall in layer rejection rates. As culling rates plunged, the need to take in pullets was drastically minimised.
All the above factors worked to limit November layer inventory growth. In response to the slack feed demand, mills cut layer feed output 1.87% on-month. This was a whopping 17.52% below November 2013's production volume.
Other than concentrated layer 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 populations usually increase strongly in November in preparation for early 2015's pre-Chinese New Year market. This year however, the rise was disappointing at less than 2%.
The likely bird flu outbreak had put farmers, especially those of China breed broiler farmers, on the defensive. Memories of last year's losses caused by the forced shutdown of live poultry markets made China breed broiler farmers particularly cautious.
With broiler inventory expansion falling below expectations, feed producers unsurprisingly cut output by 1.48%. Compared to November 2013, 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.
Complete broiler feed prices averaged RMB3,420/tonne, which was 0.58% lower on month.
Aqua feed
With winter's forced shutting down of aquaculture production mills either completely halted aqua feed manufacturing altogether or slashed output by 80% to 90%. Even in China's warmer subtropical south, aquaculture output fell to very low levels,   dragging down regional feed output by over 40%.
Unsurprisingly, 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
Pushed upward by unusually high domestic beef prices and rising dairy consumption, ruminant feed output increased a prominent 10.82% during November, which was over 6% higher than a year ago. But as it accounts for less than 5% of the country's feed production, this strong rise in ruminant feed output did little to ease the downtrend in feed demand.
Market forecast
The swine sector recover gradually, with the demand for pork rising prominently during December and January's pre-Chinese New Year market, allowing no further delays. Prices will increase, lifting the returns and strengthening the confidence of hog farmers, who will increase their increase feed stocks.
Barring any further bird flu epidemic outbreaks, the broiler sector will see stronger demand as well. Prices should rebound from yearly lows, helping to hold feed demand stable.
For the layer sector, a 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.
Although aqua feed production will continue to diminish rapidly, as it accounts for only 7% of total feed production, it cannot pull down overall output so long as hog and poultry feed output expands.
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, thereby keeping feed output below expectations.

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