May 22, 2007


Feed production in China unlikely to increase significantly this year



Diseases have severely affected China's animal inventory early this year, blunting the growth in feed production in key production areas. 

These were the conclusions from a one-week survey undertaken by China's Dalian Commodity Exchange and China's Corn Network from May 10 to May 17 to gauge the situation in China's feed industry.

The survey covered feedmills in Eastern, Southern and Northern China.

As animal diseases have brought on uncertainty in the feed markets, doubts have arisen on the actual feed output in key China's markets, with wide disparities among various organizations.

According to statistics from China Feed Industry Association, China's feed output totaled 111 million tonnes in 2006, a three-year low. During the period, pig feed output declined 5.5 percent. However, Q1 2007 feed output have shown an increase of 21 million tonnes.

The survey indicated that animal disease have exerted a significant influence on livestock production, and thus feed production would unlikely achieve any significant increase in 2007.

For example, pig diseases have been occurring in Guangdong province for consecutive years. Although these diseases were later brought under control, it has affected consumption in the market. For the past year, pig and poultry inventories have declined significantly.

As diseases have wiped out significant numbers of pigs, recovery in inventories would take time. This meant that the feed markets would not recover anytime soon. A critical issue to watch out for this year would be sow inventories, the survey concluded.

If sow inventories could recover to 2005 levels, pig inventories for the second half of the year and 2008 would experience a significant increase, setting the stage for a recovery in the feed markets

Although there has been a marginal increase in corn prices during the survey, it was not brought about by increased demand. According to the market survey in Shandong, Guangdong, Fujian and Shanghai, poultry demand has somewhat recovered, with an increase of 20 percent compared to last month. However, replenishment in inventories was low and thus corn demand was affected. Moreover, most feed enterprises have a month's worth of corn inventory, an abundant level.

As pig inventories were low, pork prices have been rising. With higher margins, replenishment would rise gradually. Barring any further epidemics, the animal production industry would recover in the second half of the year, the survey said.

According to the Feed Association, China's feed industry was strongly impacted by animal epidemics and higher cost of raw materials, causing the closing down of more than 5,000 small and mid-sized feed producers.

However, it was due to this very factor that saw greater consolidation in China's feed industry. These developments have caused feed producers to adopt more advanced technology and feed formulations while developing themselves along the corporate pathway.

As competition intensified, profit margins became slimmer and more enterprises began taking an interest in futures trading to minimise risk and lock in profits. This is one of the trends China's feed industry is heading towards, as observed by the heads of several feed corporations.