Tuesday, April 30, 2019

China Touts Ag Cooperation with Belt-Road Countries

China's investment in foreign agricultural projects is booming, according to statistics peddled by Chinese agricultural officials during last weekend's "Belt and Road" summit held in Beijing.

China Central TV reported that China has 850 foreign agricultural-related projects in commodities such as rice, corn, soybeans, natural rubber, palm oil, cotton and livestock that reflect "deepening cooperation" with "Belt and Road" countries. According to Ma Hongtao, director of the Ministry of Agriculture and Rural Affairs Foreign Cooperation Office, China has 657 agricultural projects in Belt and Road countries valued at $9.4 billion, up 70 percent from five years earlier. 89 percent of investments are carried out by private entities, the official said.

Ms. Ma explained that investments had evolved from an early focus on crop production to a broader collection of processing, transportation, storage, and ambitions to pull along industry development  and create employment in the target countries. She said over 400 "senior agricultural experts" had been dispatched to developing countries for training and demonstration since 2014.

Official Chinese statistics show that agriculture, forestry, and fishing investment abroad has been slowing. Annual outbound investment flows rose rapidly from $500 million in 2010 to a peak of $3.3 billion in 2016. In 2017 outbound ag investment slowed to $2.2 billion and it slowed again to $1.8 billion in 2018. This reflects a general slowdown in outbound investment as authorities put the clamps on outflows of cash. These statistics don't include major investments in processing such as the purchase of Smithfield Foods (which is actually owned by a holding company listed in Hong Kong) or COFCO's purchases of agricultural trading companies.

Note: annual flows of outbound investment.
Source: China Statistical Yearbooks

The official statistics show agriculture, forestry, and fishing is the smallest sector for China's outbound foreign investment. Since 2005, ag-forestry-fishing has accounted for between 1.1 and 1.8 percent of all outbound foreign investment. The stock of China's outbound foreign direct investment in agriculture, forestry and fishing was $6.56 billion at the end of 2017, accounting for 0.9 percent of China's total outbound FDI.

At one of a dozen forums held last week, China's Minister of Agriculture and Rural Affairs Han Changfu said stronger cooperation in agriculture is "urgently needed" to address lagging agricultural infrastructure, low quality of products, and insufficient "food security capacity" in many countries. China aspires to promote policy coordination, market integration, investment increase, upgrades of agriculture in partner countries. China plans to send out 500 agricultural experts in the next three years to help developing countries raise production capacity, Han said. Han called for expanded contacts in trade of agricultural products, lower trade barriers, mutually open markets, formation of equal and mutual long-term stable relations between trade partners; creation of an open, transparent, inclusive and non-discriminatory agricultural economic and trade environment; more sharing of achievements in science and technology, a stronger focus on cooperation in science and technology, technology practice demonstration bases and industry parks, and exploration of new models for technology and research extension.

Vice Minister of Agriculture and Rural Affairs Qu Dongwu promised major efforts in multilateral and "south-south" cooperation with countries on the Belt and Road. Agricultural officials from Argentina, Pakistan, Mozambique, and Tajikistan recited their ambitions to expand agricultural trade and cooperation with China.

Another article in State media highlighted efforts to develop new points of entry to create a "green channel" for agricultural products from Central Asian countries. A complex of farms on China's Alashankou border crossing will quarantine thousands of live animals imported from Kazakstan. The first phase of the 660-million-yuan project built by CITIC Construction Ltd Co (a subsidiary of a State-owned investment company) will be able to hold 100,000 cattle, 30,000 sheep, and 12,000 donkeys and horses after its planned opening in October 2019. A second phase will expand capacity next year. China has been upgrading border crossings from Kazakhstan, Kyrgyzstan, and Tajikistan and streamlining of customs clearance processes since 2015, the article said. China's Xinjiang region now has 4 designated entry points for grain, 3 for fruit, 2 for fish and shellfish products, and 1 for planting material; 7 meat entry points and 1 for fruit have been approved. The article highlights horses for slaughter, sheep meat, aquaproducts, wheat, wheat bran, and soybeans from Kazakhstan; fish products, mangoes, tangerines from Pakistan; cherries and mung beans from Uzbekistan; cherries from Tajikistan; breeding horses and cherries from Kyrgyzstan; Belarus poultry; Mongolian frozen horse meat; and plants used for Chinese traditional medicine.

Trucks carrying wheat from Kazakhstan arrive at Lanzhou free trade zone, April 10, 2019.

Earlier this month, 600 metric tons of Kazakh wheat arrived with much fanfare at a free trade zone in Lanzhou, Gansu province, built to process imports from Central Asia. The wheat was trucked from Kazakhstan to the Lanzhou zone where it cleared customs. A pharmaceutical company in the Lanzhou zone called Haixiang Biotech Ltd Co will sell the wheat to be used as animal feed in Chongqing and Chengdu. The shipment is said to be a demonstration of plans for expanded trade in grain and oils with Central Asia. One rationale for boosting the trade is to utilize empty shipping containers returning to China from Europe. The Assistant manager of the company operating the free trade zone told State media that the zone will work hard to attract companies through tax rebates, land lease fees, and electricity rates.

Tuesday, April 16, 2019

China Soy Imports Slide Due to Multiple Factors

China's decline in soybean imports during Q1 2019 soybean market is due to weak fundamentals, including impact of African swine fever, the overhang of large U.S. inventories and expanded plantings in South America, according to an article in the country's Grain and Oils News this week.

Customs data reported China's March soybean imports totaled 4.9 million metric tons (mmt). The Q1 2019 soybean import total of 16.75 mmt was down 14 percent from a year earlier. Meanwhile, imports of fats and oils for the quarter totaled 1.96 mmt, up 48 percent from a year earlier.

Noting a slow-down in purchase of oilseeds, fats and oils, a COFCO manager said, "Our country's growth in oilseed purchases has reached a turning point." The COFCO manager said slow soybean purchases are due to the lowest crushing margins in years, low soybean meal basis, exchange rate factors, and slow downstream business activity.

A manager with feed company Haid Ltd. said multiple difficulties have come to bear on soybean prices, including African swine fever, China-U.S. trade tensions, and expansion of soybean production in South America.

According to Grain and Oils News, China's Feed Industry Association estimates that 2019 feed production will be down 1-to-2 percent and 2018/19 consumption of protein meals will be down 4-to-6 mmt due to the influence of African swine fever.

The decline in China's soybean meal market is attributed to global excess supply of soybeans, the possible resolution of China-U.S. trade tensions, declining profits for hog farms, and import of substitute meals to replace soybean meal. This triggers a "chain reaction" that affects soybean imports, the article said.

The United States is still holding large inventories of soybeans while South America is set to have a big crop, adding downward pressure on prices, Grain and Oils News said.

One trader who did not give his/her name told Grain and Oils News that China's consumption of protein feed was already waning when African swine fever broke out last August. Swine disease compounded the slide in feed demand, causing the decline in soybean imports.

Thursday, April 11, 2019

China Swine Feed Down, Poultry Feed Up

China's animal feed output grew 2.8 percent during 2018, according to figures released by the country's Feed Industry Association. Swine feed sales are down due to effects of African swine fever, but impacts vary by region. More recent reports say poultry feed sales are expanding, but they are constrained by lack of breeding stock and environmental restrictions. The reduction of soybean meal use parroted by officials in Beijing is never mentioned in reports on feed mill site visits--its low price still encourages use.

China's feed industry association said 2018 swine feed output was down due to the impact of African swine fever (ASF), while production of poultry, aquaculture and ruminant feed production was up. Production of complete compound feed was up 4.6 percent, but concentrates was down 13.4 percent (typically soybean meal and other protein meals, and micronutrients to be mixed on-farm with grains for pigs). Premix output was also down 5.1 percent.

China animal feed industry output, 2018
Type of feed
Million metric tons
All feed 227.88 2.8
Complete feed 205.29 4.6
Concentrate 16.06 -13.4
Additives, premix 6.53 -5.1
by species:
Swine 97.20 -0.9
Layers 29.84 1.8
Meat poultry 65.09 8.2
Aquaculture 22.11 6.3
Ruminants 10.04 8.9
Other 3.60 10.7
Source: China feed industry association.

Swine feed accounts for 43 percent of feed output, according to the industry association statistics, a surprisingly small share considering that last year's pork output (54 mmt) accounted for 63 percent of meat output (85.2 mmt) reported by China's National Bureau of Statistics. Feed for chickens and ducks accounts for a disproportionately large share of feed output. Thus, expansion of China's poultry production is to some degree cushioning the industry against the decline in swine output.

Two Chinese provinces--Guangdong and Shandong--are dominant in feed output. Guangdong is the largest swine feed producer, but poultry and fish feed account for a large share of the province's feed output. In Shandong--the center of China's broiler industry--poultry feed output is more than double swine feed production. Guangdong is China's top fish feed producer and Shandong is the top poultry feed producer. Guangxi, Liaoning, Jiangsu, and Fujian also have significant poultry feed production. Jiangsu and Hubei are no. 2 and no. 3, respectively, in fish feed output.

This being China, every statistic is problematic. There are at least three statistics on China's feed output for 2018 that are within a few percentage points of one another. An industrial output statistic available deep in the National Bureau of Statistics web site says cumulative feed output through December 2018 was 242 mmt and was up 3.4 percent from the previous year. The Alltech global feed survey reported a much lower output of 187.9 mmt for 2018 and negative growth in output (-0.4 percent). Alltech says China is the world's leading feed producer.

Measures of China's animal feed production, 2018
Source 2018 output Growth
MMT Percent
China Feed Industry Association 227.9 2.8
China National Bureau of Statistics 242.1 3.4
Alltech global feed survey 187.9 -0.4

A separate report on site visits to feed manufacturers in Jiangxi, Hebei, Shandong, and Henan Provinces during February 2019 posted on a feed industry news site reported that swine feed production was down in February due to combined impacts of ASF and that month's lunar New Year holiday. The report said ASF impacts were milder in southern provinces and more serious in northern provinces. Hebei Province was singled out as a "disaster area" with swine inventories down 50 percent or more on most farms. The report concluded that expansion of poultry feed output was offsetting the decline in swine feed and anticipated more of the same if ASF could not be brought under control. (Publication of the month-old report was probably delayed by the usual ban on bad news during the "two meetings" of communist party leaders held in March.) 

A large feed mill in Jiangxi Province said there were ASF outbreaks in local plains regions but few in mountainous areas. The company had a big decline in swine feed output. Some large swine-farming companies were looking to expand production to take advantage of high prices later in the year, but medium and small farms are "on the sidelines." A feed mill in eastern Shandong said it was not affected much by ASF because small pig farms there don't buy much commercial feed. Sales of poultry feed were brisk. However, the supply of broiler chicks is limited due to restrictions on imports of breeding stock and prices are rising, shrinking profits for poultry growers. 

In Fujian, feed mills were said to buy corn cautiously, holding much lower inventories than usual. Output at a large feed mill in Hebei Province was down 60 percent in February, and corn purchases were only half the planned amount. 

Another March 2019 industry report on site visits in Guangdong found that swine feed sales were down 10 to 50 percent, but poultry feed sales were up 10 percent. Swine farms worried about ASF risks switched from mixing their own feeds to purchasing complete feed from a reputable mill. Expansion of poultry farming is constrained by environmental regulations in Guangdong. Duck farming is reportedly moving from Guangdong into neighboring provinces Guangxi and Hunan. An expansion of fish ponds in Hubei province has driven down fish prices, discouraging further aquaculture expansion in Guangdong. 

Reports do not mention the Chinese feed industry association's new standards published last October calling for reduced soybean meal inclusion. To the contrary, the Guangdong report says that the current price of soybean meal makes it a very cost-effective ingredient, and inclusion of soy meal in feed formulations was said to be at its upper limit. The soybean meal price was said to be about 2500 yuan/mt (down about 1000 yuan from the peak price in October). There was no shortage of protein feed ingredients, but companies were holding minimal inventories as they expected supplies to increase as soybean import arrivals increased their pace (from their low point in January-February). High prices for rapeseed meal were discouraging its use. 

Feed mills in Guangdong reported reducing their use of imported sorghum and barley-formerly at 40% of feed formulations. They now use 60-65% corn and 20% soybean meal in swine feed rations. They purchase most of their corn from depots in the northeast where they have personnel posted to keep an eye on grain purchasing and drying. One feed mill was considering eliminating wheat bran from feed because of the risk of transmitting ASF from wheat-growing provinces in the north. Mills are adding some field peas and sunflower seed meal to feed. another company engaged in feed and livestock farming emphasized the flexibility of feed formulations for poultry. 

Thursday, April 4, 2019

Pig Number 'Landslide' Reported in Chinese Provinces

Steep declines in China's pig population due to panic-slaughter over fears of African swine fever have been reported by Chinese government officials, industry investigations, and journalists in the first months of 2019. Reported reductions in swine inventories of 20 percent or more in many regions portend tight supplies and rising prices in coming months.

A Ministry of Agriculture and Rural Affairs (MARA) investigation of the swine situation in seven Chinese provinces during February found "irrational" culling of sows on breeding farms was reducing the core production capacity of the sector. In Henan Province, for example, the inventory of productive sows was down 26 percent year-on-year at the end of January 2019. The team from the Ministry's animal husbandry bureau found big cutbacks in herds by backyard farmers, big commercial companies, and key provincial nucleus breeding herds.
Head of a pig-farming "cooperative" in Jilin Province complains 
that pigs can't be transported across provinces
Farmers and traders in Jilin Province interviewed in a March television report estimated that swine inventories were down by half from a year earlier. One pig broker said she used to buy 200 hogs a day, but after the Lunar New Year holiday she gets only 30-50 per day and she's now giving farmers gifts to drum up more business. The broker pointed to empty barns along the road where she says farmers afraid of the disease have cleared out all their pigs. The MARA team also visited Jilin and said provincial monitoring statistics showed the swine inventory was down 28 percent from a year earlier.

Last week, the veterinary bureau in Shandong Province reported a 41-percent "landslide" decline in sow numbers between July 2018 and February 2019 at 33 "grade 1" breeding farms the bureau monitors. The herds on 1,100 commercial finishing farms were down 18.8 percent from July to February. Activity at Shandong slaughterhouses fell during February and meat inventories accumulated. Only one outbreak of African swine fever has been officially reported by government officials in Shandong.

An industry group's site visits to Guangdong Province pig farms, feed mills, and pork processors during March found that the impacts of the disease were not very serious there until African swine fever began spreading rapidly in the first months of 2019. The investigators estimated that swine inventories in Guangdong were down 20 percent from a year earlier. Some of the reduction was due to direct culling after disease outbreaks, farmers liquidating herds to prevent infection and/or to wait and see how the market develops, and closure of farms due to enforcement of environmental regulations.

National Bureau of Statistics industrial output statistics show production of "fresh and frozen meat" by processing plants during January and February 2019 was down 17.3 percent from a year earlier.

Soozhu.com commentary last month said "scarcity of pigs has become an indisputable fact," and anticipates a 30-percent decline in hog supplies after the second quarter of 2019.
Spokesman for a large pig farm with image of sow barn on TV screen 
says "So we have to rely on ourselves."
In Henan Province, the MARA investigators learned that Xinda Muyuan Company had cut its number of sows from 25,000 in December to 10,000 in February. Another company in Luoyang City said ten farms it monitors had reduced their herds from 47,000 to 4,000 over the same period. One farm in Henan's Xin'an County said they had liquidated all sows that had had three or more litters to avoid ASF. Reports say sows are most susceptible to ASF infection. Many companies stopped breeding their sows. MARA said the sow inventory in Guangdong was down 26 percent from a year earlier. In Guangdong there are farms that want to restock herds to take advantage of high prices in coming months, but piglets are very expensive when they are available at all. In Henan, the inventory of 20-kg piglets is much less than usual and the price doubled after the Lunar new year holiday.

The reports say there was a surge of slaughter starting late in 2018, including many sows and immature animals. Slaughter at 10 key processors in Henan was up 47 percent from a year earlier during the fourth quarter of 2018, the MARA report said. The TV report about Jilin Province said prices fell before the spring festival as large amounts of pigs and cattle came on the market, but now supplies are tight.

Both the MARA report and the industry investigation said environmental restrictions are compounding supply problems in Guangdong and Jiangxi Provinces. According to MARA, one group of Guangdong villagers demanded closure and compensation from farms they blamed for degraded groundwater quality. After third-party testing failed to support their claim, they physically attacked the farms, and officials closed the farms last summer. In another Guangdong village, all but 9 of 227 pig farms were closed after the neighboring river was designated as "black and malodorous." In another Guangdong district tagged for "high quality development" officials aim to close all farms with less than 1,000 head to meet targets for a local plan to clear out dirty pig farms. The district closed 586 swill-feeding farms with 260,000 head.

The industry team estimated that overall feed sales in Guangdong Province were down 10 to 50 percent. Poultry feed sales were up 10 percent, although the team said environmental regulations are also closing chicken and duck farms. Shandong's swine feed production peaked in October and decline accelerated in February. Shandong feed output was down 33 percent from a year earlier.

Another farm in Guangdong wants to restock its pigs but testing to verify animals are free of ASF is a bottleneck since there is only one testing station. Other farms complain that costs were raised 10 percent by purchases of drugs, disinfection equipment and hiring guards.

Several years ago, the Ministry of Agriculture's "action plan" to address environmental pollution called for closing pig farms in southern districts vulnerable to water pollution and moving pigs into the northeast. Those plans are not working out well in Jilin Province where MARA reports dramatic declines in pig numbers in several towns and large farms. MARA reported that Wens Group and Muyuan have both built farms and have infrastructure in place but are unable to move swine from other provinces to stock the farms. Muyuan has two huge breeding farms in Jilin stocked at just 30 percent of  production capacity. A photo of a powerpoint presentation showed the inventory of market hogs and sows and slaughter volume in Jilin Province fell each year from 2015 to 2018.

Tight cash is another problem Chinese pig farmers are encountering. A farm in Jilin Province run by Chuying (Eagle) Group says it was unable to buy feed and had only enough for pigs to eat every few days. The local government gave them 10,000 tons of corn that lasted only 12 days. They say 338,000 pigs starved to death as of January.