March 16, 2021
 
COVID-19, high input costs and the China-Latin America connection
Another difficult but transformative year for feed milling
 
By Eric J. Brooks
 
An eFeedLink Hot Topic
 
 
After growing 3% to 4% annually for several decades, feed output only grew 2.6% annually and a mere 0.9% in 2021, to 1.187.8 billion tonnes. Moreover, following a decade of livestock diseases cherry-topped by last year's COVID-19 lockdowns, 2021 looks mericless to feed milling's bottom line: From a COVID-19 induced low of $3.13/bu in Q2 2020, corn has risen 75% to 80%, to around $5.60/bu at the time of publication. Soybeans have similarly risen 63% above their Q2 2020 lows of $8.40/bu to the current $13.68/bu.
 
Compared to an average 2020 price near US$60/bu, US live hogs are up by less than 30% versus a feed cost increase of approximately 70%. Hogs are also only 10% above their early 2020 price. US live cattle are trading 10% below their 2020 Q1 levels. In Brazil's depressed domestic market, feed and day old chicks now make up a whopping 87% of broiler production costs. With rising corn and soybean prices squeezing livestock farming returns, 2021 will be another difficult year for the world feed sector.
 
But there is one bright spot that increasingly defines world feed milling's promise and future: A burgeoning trade relationship between East Asian demand and flexible, rapidly expanding Latin America supply.
 
More than any other nation, China made the difference: After falling an eFeedLink estimated 5% from 216.8 million tonnes in 2018 to 206 million tonnes in 2019 (when hog inventories fell by over a third from pre-ASF outbreak levels), China's 2020 feed output rebounded a strong 15.5%, totaling 238 million tonnes.
 
China's recovering economy not only boosted domestic feed production but that of its Latin American meat suppliers. This can be seen in both Brazilian and Argentine agribusiness statistics, where despite severe COVID-19 induced recessions, feed production grew quickly amid booming exports and flat domestic meat consumption. In both Brazil and Argentina's case, China accounted for more than the entire increase in red meat exports.
 
In Argentina, total consumption of beef, chicken, and pork increased by a nominal 0.6%, its beef and pork exports jumped by 8.8% and 255% respectively. With the entire increase in exports accounted for by China and red meat, Argentina's 2020 feed production defied COVID-19, rising 7.1% to 22.5 million tonnes.
 
Similarly, Brazil saw beef, chicken, and pork consumption fall by 1.2% to 20.7 million tonnes but feed intensive beef and pork exports rising by nearly half a million tonnes, feed output was stimulated. The large increase in Brazilian and Argentine beef and pork exports to China dovetailed with higher shipments to Vietnam and the Philippines, as they too experienced severe ASF outbreaks and falling feed production simultaneous with rising swine meat imports.
 
Moreover, with feed mills seeing that input costs would rise sharply in late 2020/early 2021, both Brazilian and Argentine producers opted to make some of the feed they would use in 2021 in Q3 and Q4 2020 when corn and soybean costs were low. This turned out to be a far-sighted move, as at the time of publication, corn is selling 75% above its Q2 2020 lows and soybeans 65% higher respectively.

Alongside China's export boom, that helped push Brazil's feed production from 70.4 million tonnes in 2019 to 77.6 million tonnes in 2020. Brazil's 10.2% increase in feed production is second to only China. Argentina and Brazil's surprisingly strong performance helped Latin American feed output grow 4%, faster than any other part of the world.
 
When China is factored out, overall feed output in the rest of the world fell but again, large regional disparities are evident. Asia-Pacific feed output expanded 1.6%, from an Alltech estimated 427 million tonnes in 2019 to 433.9 million tonnes in 2020 but factor out China's 2020 feed output increase and feed output in the rest of Asia Pacific fell last year.
 
Most of the decline was concentrated in Southeast Asia, where an increase in Thai output (+1.1mt, 21.3mt) was more than counterbalanced by ASF-induced declines in the feed output of Indonesia (-2.5mt, 17.5mt), Philippines (-0.9mt, 18.3mt), Malaysia (-0.5mt, 4.5mt) and Myanmar (-0.26mt, 3.25mt). In South Asia, COVID-19 induced a fall in meat demand coincided with bird flu outbreaks. Indian feed output contracted contract by 2.1 million tonnes or 5%, from 41.4 million tonnes to 39.3 million tonnes.
 
China's large 15.5% rise in feed output (not including pets) from an eFeedLink estimated 206 million tonnes to 238 million tonnes was almost completely counterweighted by lower feed output in every part of Asia except the mature economies of Japan (-0.4%, -0.1mt) and South Korea (+3%, 0.6mt), which saw their collective feed output rise a collective 1% or 0.5 million tonnes.
 
As a result, Asian feed output outside of China fell 2.8%, from 199 million tonnes in 2019 to 193.4 million tonnes in 2020. It also means that after slipping to below 50% in recent years, China's share of Asian feed output rebounded to 55%.
 
In North America, a short COVID-19 lockdown period and fast economic recovery made for rapidly rebounding meat consumption while export demand stayed high. Canada's (-0.9%) fall in feed output was swamped export-driven America's larger 1.5 million tonnes gain and nominally higher Mexican output, causing NAFTA zone output to rise 0.5%, from 236 million ton 237.2 million tonnes.
 
The message is clear: 2020's flat feed output contains the story of rapidly rising Chinese and South American  production counterbalancing falling Indian, European and Southeast Asian output. East Asia's elastic, buoyant meat demand and South America's equally elastic feed supplies make a perfect match but agribusiness will not have truly recovered until all world regions embark on a period of steady, uninterrupted growth. This may not occur before the middle of our decade.
 


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