Saturday, December 4, 2010

Feed Grain Analysis

A Dec. 2 report posted on the China Livestock and Veterinary Association web site provides a good analysis of China's feed grain situation and outlook.

The report discusses China's growing demand for grain as livestock feed in the context of worries about food security. As feed demand accounts for a rising share of grain use, will China have to import grain?

China has a diverse mix of grains, including corn, rice, wheat, millet, sorghum, and tubers. Soybeans are traditionally included in the Chinese concept of "grain," although they are not directly consumed as feed. Soymeal is the most important source of protein in feed. China also uses a lot of by-products from grain milling, processing and liquor manufacturing.

About 40% of grain is used for animal feed, a total of 200 mmt. Nearly all feed comes from domestic sources except for soymeal which is nearly all imported. The proportion of various grains used for feeds varies. The report estimates the feed consumption of grains as follows.

Grain / Feed Use / Share used for feed
Corn 106.6 mmt 65%
Rice 29.25 mmt 15%
Wheat 23.02 mmt 20%
Tubers 8.99 mmt 30%
Sorghum 3.69 mmt 50%
Soymeal 30.5 mmt 100%
Total 202.05 mmt 40%

The report emphasizes the shift in livestock production to more commercial, industrialized modes of production as a factor increasing grain use as feed. In 2009, the report says the proportion of production from commercial-scale operations was up 5 percentage points for hog farms, 4 points for egg and poultry farms, and dairy farms were up 10 percentage points. The report anticipates that feed demand for grain will rise 3-to-4 mmt per year over the next five years.

Consumption of grains as staple food has been more or less stable. During the last five years population grew 8-10 million per year but per capita consumption fell. Direct food use of grain was steady at about 250 million metric tons (mmt). By 2015, the report anticipates the population will be 1.4 billion people and food use will be 260 mmt. Food use consists mainly of rice and wheat.

The report anticipates that feed use of grain will increase 30 mmt over the next five years and food consumption of grain will rise 10 mmt. Industrial use will also increase but no number is provided. The report suggests that the use of grain for industrial processing should be "scientifically controlled." (In other words, "We're using too much grain for industrial processing.")

The report notes that China is basically self-sufficient in feeds that provide energy--such as corn, but it has a severe deficit in protein feeds. Soymeal is the main source of protein, nearly all of it from imported soybeans. China also imports about 1.7 mmt of fish meal, another high-protein feed. Other sources are cottonseed, other plant proteins, and meat and bone meal products. The reliance on imported protein leaves China vulnerable to price fluctuations and is "a hidden danger for livestock production." It also cites quality problems due to the protein deficit: "...the market is flooded with low-quality protein ingredients, presenting a serious quality threat." This apparently is referring to melamine.

The report cites "a growing tension" in energy feeds. Corn use for feed is reportedly increasing 3.4 mmt per year. Corn production increased 24 mmt from 2005 to 2009 while feed use increased 13.6 mmt. In coming years, corn will compete with food grains--rice and wheat--for land area, leaving little room for growth in corn production and putting pressure on corn supply.

Another issue addressed by the report is the regional imbalance in feed supply and demand. Traditionally, each region was mosty self-sufficient, using locally available feedstuffs. In recent years as the livestock industry became more reliant on grains, southern regions had a deficit and the northeast had a large surplus of grain. The northeast transports about 15 mmt to other regions annually. Guangdong, the province with the largest feed industry, relies entirely on raw materials from other provinces. Transporting feed long distances raises costs and risks for livestock producers. Constraints on rail capacity sometimes result in regional shortages.

The report calls for formulating a feed grain plan (maybe as part of the 12th 5-year plan). This entails identifying advantaged regions that should specialize in feed grain production and determine suitable varieties. It calls for integrating feed companies with farmers by signing production contracts.

Another strategy is to utilize "nongrain" feeds to fully utilize resources. This includes straw and other residues from crops, silage, hulls, meals, bran, dregs and other industrial and livestock product byproducts. The report estimates that China uses 210 mmt of directly-consumed or ammoniated ensiled crop residue, which replaces about 50 mmt of feed grains. Dregs from production of wine and hard liquor total 19 mmt and byproducts from beer 41 mmt; this is said to be equivalent to 10 mmt of soy meal. The report says these resources need to be better-utilized as feed.

The report recommends more use of high-amino acid feed formulations that can reduce protein content in hog feed by 3 percentage points. It is estimated that such formulations could reduce China's use of protein feeds by 7 mmmt. China is now the main producing country and exporter of amino acids, so the report points out that the base is present to pursue this approach.

Another strategy is increased use of complete formulated feed. It is said uniform use of commercial feeds conserve grain compared with farmers mixing feed themselves.

It says feed mills are the key actors to make the industry more efficient. But in recent years some feed mills were not profitable and "encountered operational difficulties" as feed raw material prices rose higher and livestock profits were low.

The report's suggestions include a whole range of subsidies for companies. Companies should be given financial support for integrating with farmers, utilizing nongrain feeds and low-protein formulas. It recommends tax breaks and subsidies for feed mills to help them spread use of formula feed.

The report recommends that the government adopt a flexible, cautious attitude toward grain. It emphasizes coordination of grain shipments from north to south, with northeastern grain shipments "radiating outward" to include Southeast Asia. The last sentence elliptically seems to be saying "we might need to import corn." It says, "at the same time utilize the price difference and freight cost advantage of foreign feed to import feed at appropriate southern ports to meet the domestic grain deficit."

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