Friday, September 19, 2014

High Corn Prices Bite China's Livestock

"A tiny kernel of corn has become our great burden," said Mr. Yuan, the manager of a dairy farm near northeastern China's Dalian City. He purchases 60,000 kg of corn monthly at 1.35 yuan/500g (over US$ 11 per bushel). Corn prices have been rising but milk prices haven't, forcing farms to absorb the higher cost.

Ms. Liu raises 3000 hogs near Dalian and needs to purchase 200,000 kg of corn each month. She says corn accounts for 75% of production costs. The hog price is 7.4 yuan/500g, 5.5 times the corn price. Chinese farmers estimate that they need a hog price of 8 yuan to break even.

At a 20,000-hen egg farm, corn is said to account for 60% of production cost. A manager says the high price of corn has induced many egg farmers to substitute other feeds for corn. The egg price is rising, partly due to high corn prices but mainly due to tight supplies as laying hen inventories are still relatively low (presumably the fallout from avian influenza outbreaks earlier this year).

It is reported that newly-harvested corn is being sold as soon as it is dried. The price is about 1.3 yuan/500g.--about $423 per metric ton. The U.S. Gulf FOB price for corn is $162 per metric ton today. If Chinese livestock producers could import corn, they could save about $200 per metric ton.

Chinese hog prices are equal to roughly $132 per hundredweight. U.S. hog prices are about $70-$80 per cwt. If Chinese farmers try to boost their price to the breakeven price of 8 yuan/500g ($143 per cwt) as many Chinese pork industry analysts seem to be forecasting, imported pork will have significant price advantage. Watch for trade barriers to block pork imports in the near future.

1 comment:

Anonymous said...

The Chinese government is in a tough position, they want to support rural incomes with high corn prices, but the livestock sector doesn't seem to be able to pass on higher feed costs.