November 07, 2003
Third Quarter Feed Production in China's Guangdong Province Increase; But Profit Margin Drop
An eFeedLink Exclusive Report
Competition in Guangdong's feed industry was stiff during the third quarter. Feed millers encountered many difficulties, despite an increase in the production volume of feed. Increase in the prices of raw materials for feed production and difficulty in the sales of poultry feed led to drastic fall in economic returns. Guangdong is China's largest feed-producing province, accounting for 10% of annual feed produced in the country.
(I) Slight Increase in Total Feed Production in Guangdong Province
Total production of feed in Guangdong province increased slightly. Production of aquatic feed increased remarkably, and exports also went up. Based on the data submitted by the various cities across Guangdong province, total production of industrial feed reached 6.72 million tons, a year-on-year increase of 680,000 tons or 11.3%. Of these, complete feed accounted for 5.78 million tons, a 11.8% increase over the corresponding period last year; concentrated feed accounted for 133,000 tons, a 4.2% increase over the same period last year; premix feed accounted for 113,000 tons, a decline of 2.3% over the same period last year.
A total of 430,000 tons of feed were exported, creating an income of US$4.11 million. Both figures were a significant increase over the same period last year. Output value of the feed industry was RMB13.3 billion, a year-on-year increase of 11.5%.
Complete feed for poultry constituted 3.9 million tons (including 450,000 tons of feed for egg-producing ducks and layers; 1.86 million tons of chicken feed; 1.69 million tons of duck feed); pig feed constituted 1.18 million tons; aquatic feed constituted 1.22 million tons, registering an increase of 110,000 tons, 70,000 tons and 410,000 tons respectively over the same period last year. Livestock feed and pig feed grew slightly by 2.7% and 6.5% respectively. Meanwhile, chicken feed contributed to mitigate the downslide in livestock feed production during the first half of the year and grew 5% year-on-year. Production of aquatic feed continued to grow rapidly, increasing by 51.4%.
As for concentrated feed, pig feed accounted for 93,000 tons, a year-on-year increase of 43%. Premix feed for pig accounted for 77,000 tons, a year-on-year increase of 34.5%, while premix feed for poultry accounted for 17,000 tons, nearly double the production during the corresponding period last year.
(II) Feed Production Capacity Continues to Grow
During the first three quarters of this year, the production capacity of Guangdong province for feed reached 8.67 million tons, showing an increase of 1.58 million tons over the same period last year, or an increase of 80,000 tons over the 8.59 million tons as at end June this year.
(III) Recovery in Livestock Industry
Based on statistics by the China's Provincial Statistical Bureau, total meat production for the first three quarters in Guangdong province reached 2.677 million tons, a year-on-year increase of 3%. Of the total meat production, 23.25 million pigs were slaughtered, a year-on-year increase of 5%; 645 million poultry were slaughtered, a year-on-year decline of 2.3%. Meanwhile, 25.66 million slaughter chickens were exported between January to September, a year-on-year decline of 9%; 274,000 slaughter pigs were exported, a year-on-year decline of 5%.
Meanwhile, prices of livestock products rose steadily. Pork prices went up, prices of slaughter pigs in pig-producing regions rose from RMB8.0-RMB8.8 to RMB9.6-RMB10.0 per kilogram. Rumors circulated in the market, during the first half of the year, that SARS was related to certain fowl diseases. This has caused many people to avoid consuming poultry products. As a result, prices of poultry products fell drastically, and poultry farmers operated in very difficult circumstances.
During the third quarter, poultry production began to rebound. The recent increase in feed prices resulted in the correspondingly rise in costs of chicken-rearing. However, prices of chicken did not increase correspondingly, thereby seriously hurting the confidence of chicken breeders. This inevitably affected the feed industry, which is closely linked to the fortunes of the poultry industry, casting a shadow over the poultry feed market. In addition, the constant appearance of new plants has resulted in over-capacity, leading to disorganized competition and declining corporate profitability.
(IV) Unpredictability of Feed Prices
Since the beginning of October, rapid changes have taken place in the market of raw materials for feed production, with the prices of soymeal continuing its astonishing climb. During the middle of September, soymeal prices were stabilizing at above RMB2500-2600/ton. But it was not for long and during the period between early October to mid-October, soymeal prices surged to the level of RMB3100-3300/ton, and continue to rise unabated toward the end of October. This compared to soymeal prices of RMB2060-2300/ton at the beginning of this year, registering a major increase of huge proportion.
In addition, the huge increase in soybean prices has also caused the price hikes of corn, fishmeal, oil, etc. The increase in the prices of raw materials for feed production has resulted in the margin of increase in feed additives to jump sharply. For instance, average market prices of lysine were in the RMB20-25/kg range, this even dropped to a low of RMB16-17/kg in March this year; however, its prices rose by unprecedented proportion to the RMB50-52/kg range recently. Usual prices of methionine were RMB25/kg, but this has risen to over RMB40/kg recently.
(V) Forecast of Guangdong Province's Feed Production in Fourth Quarter
Affected by such factors as price fluctuations and difficulty in exporting livestock and poultry, feed production in the fourth quarter would be extremely challenging. Operating conditions for companies would remain difficult, and total feed production for the whole year is expected to achieve steady growth. The following measures are proposed by market analysts to ensure the feed industry continue to develop and grow:
- Utilize technology to reduce production costs and ensure product quality. Alleviate the pressure brought about by increased prices of raw materials by adjusting feed formula in a rational manner, and use certain unconventional raw materials for feed production as well as advanced, effective feed additives. This should be done on the premise of ensuring product quality. At the same time, feed millers should further strengthen their management skills and cost control, and upgrade their equipment, so as to capitalize on their potential and reduce wastage.
- Adjust product structure by combining such development characteristics of the livestock industry as its shift toward the countryside and hilly regions. Focus on product quality; develop feed suitable for hilly regions and increase the market penetration of aquatic feed.
- Step up law enforcement and take strong measures against illegal activities such as the manufacturing, sales and use of such banned drugs such as "Clenbuterol Hydrochloride". Try to crack down on illegal production of feed additive, in order to create a healthy framework in the feed industry.
- Speed up the pace of utilizing technology to prosper the feed industry, and implement a branding strategy, so as to raise the quality standards of the various feed products. This year, only 14 feed-related manufacturing companies submitted 17 products for official endorsement, but only one product was approved by a team of professionals and industry evaluation committee, which is "VTR Bio-Tech".
- Increase publicity. Build up consumer confidence through the use of science and authentic information, so as to provide guidance for a healthy lifestyle and consumption of meat. This, in turn, would help promote the development of the livestock and feed industries.
- Increase information flow. Continue holding quarterly production talks, exchange information on the demand and supply of major raw materials for feed production, such as corn and soymeal, as well as the situation of their output and sales, so as to create a favorable environment for feed production.