September 25, 2003
China's Feed Production Industry Is Again Bracing Itself To Face New Challenges
An eFeedLink Exclusive Report
Lately, various moves have been taken by China to review and amend its policies pertaining to the import of soybeans. These moves are likely to result in a reduction in the volume of soybean import into China. According to informed industry sources, the reduction in soybean import will exert a domino effect on China's soymeal and animal feed production. Having just recovered from the devastating effects of SARS which hit during the first half of this year, China's feed production industry is now seen as having to brace itself to face another round of new challenges.
For the first seven months of this year, China's customs statistics revealed that the country's soybean import totaled 12.27 million tons, an increase of 146.9% over the same period last year. In fact, this amount has exceeded the figure for the whole of last year's import of soybeans.
Faced with such massive influx of imported soybean, China decided to tighten its Customs control. Apart from deferring the date of implementation of the temporary GMO regulations to April 20, 2004, and requiring suppliers to apply for new permits for the sale of soybeans imported after September 20, 3003, China's governmental authorities also stipulated the need for local importers to apply for certification of new labels for their imported soybeans.
Additionally, through more stringent Customs inspection on the quality of imported soybeans and a more regulated pace of issuance of import permits, the overall volume of soybean import was being managed accordingly. Some traders have anticipated a slow down in the pace of issuance of permits for soybean import during the 4th quarter of this year.
While there was a significant increase in market supply of locally produced soybeans in the month of September, the increase did not help much to alleviate the pressure of market demand. In recent years, local production of soybeans had been hovering between 15 million tons and 17 million tons per annum, insufficient to meet the huge market demand for soybeans. Most of the crushers in China use imported soybeans for their crushing operations, as in the case of Guangdong province, where 95% of the oil crushers are dependent on imported soybeans for their production. A slow down in crushing operations will directly affect the supply of soymeal - a principal ingredient used in feed production.
Any market uncertainty concerning soybean supply after mid September is likely to cause a slow down in crushing operations, which will in turn, result in a drop in soymeal supply and a rise in soymeal prices.
Faced with such possible supply shortage and rise in prices of soymeal, feed producers in China are showing increasing concern over the imminent hike in production cost.
For the remaining quarter of this year, analysts have projected three possible scenarios which will impact the movement of soymeal prices differently:
1. Further tightening of China's import regulations on imported soybeans - this will likely lead to a shortage of soybeans for crushing operations, which will in turn cause prices of soymeal to rise, possibly to as high as the last 2003 record level of RMB2700 /ton;
2. No change in current import regulations on imported soybeans - in which case, soymeal prices are unlikely to rise above RMB 2300 /ton;
3. Relaxation of import regulations on imported soybeans - in which case, soymeal prices are likely to hover within the range of RMB2150-2200 /ton.
Currently, the direction of soymeal price movement is still unclear, as uncertainties abound.
Overall, informed sources are of the view that despite the possible threat of rising cost of production, caused by the imminent increase in soymeal prices, feed producers have reasons to stay optimistic for the remaining course of this year. This is because, following the end of the SARS epidemic, China's livestock industries have recovered steadily, with increasingly strong growth seen in market demand. This will in turn help to stabilize the feed production industry. In effect, compared to the first half of 2003, the overall outlook for the feed production industry for the second half of the year is very positive.