The profit landscape of the flour industry is shifting - who is driving it from behind the scenes?
At present, with wheat strong and flour weak, humble bran is to a certain extent affecting the operating efficiency of wheat processing enterprises. Since the second half of last year, bran prices have continued to decline, making flour processing enterprises that were already struggling even worse off, and also affecting this year's summer grain purchase. How can flour processing enterprises get out of their predicament? The reporter started with bran, hog farming and several other links to conduct in-depth research.
Flour and bran are the two main profit growth points for wheat processing enterprises. Under the current situation of wheat strong and flour weak, bran prices directly affect enterprises' operating conditions. Since the beginning of this year, affected by the sluggish bran prices, the profit margins of flour processing enterprises have further narrowed. Recently, pork prices have continued to rise, and the hog farming industry is expected to recover. Can this drive bran prices back up and thus lead flour enterprises out of their operating difficulties?
Pork prices rise
Bran market expected to recover
At present, bran supply is large, and prices are unlikely to rise in the short term. In the long run, a recovery in the farming industry will help drive bran prices higher
Entering July, bran prices fluctuated up and down, bringing a lot of uncertainty to the market. Shen Hongyuan, a senior analyst at the Zhengzhou Grain Wholesale Market, believes that after the sluggish prices in May and June, bran prices rose rapidly in July, jumping from about 0.55 yuan/jin at the end of June to 0.75 yuan/jin in mid-July, with some regions even breaking through the high range of 0.8 yuan/jin. To expand bran sales, many wheat processing enterprises increased their operating rates and compressed ex-factory flour prices to facilitate flour sales. In late July, bran prices stopped rising and stabilized, and at the end of July fell back into the range of 0.55 yuan to 0.6 yuan per jin, while ex-factory flour prices remained depressed, with 30 flour currently hovering around 1.56 yuan per jin. Bran price fluctuations directly affect the operations of wheat processing enterprises. In July, bran prices fluctuated sharply, increasing enterprises' operating risks.
Since the second half of last year, wheat bran prices have continued to fall, severely squeezing processing enterprises' profits. This is an important reason for the operating difficulties of flour processing enterprises. Although the main product of wheat processing enterprises is flour and bran is merely a by-product, under the long-term sluggishness of flour, bran prices largely determine enterprises' profit levels.
When the reporter visited Henan Jintiandi Flour Co., Ltd., a transport vehicle in the factory area was loading flour and bran. Company general manager Shi Aiyun told the reporter that they are a small processing enterprise producing special flour for braised noodles, with an annual processing capacity of about 70,000 tons. Amid the industry's general downturn, their company's profitability is still fairly good. However, since the second half of last year, bran prices have fallen sharply, and their company's monthly losses have reached about 400,000 yuan.
Shi Aiyun believes that large imports of substitute feed such as sorghum and barley are an important reason for the current decline in bran prices. Imports of coarse grains such as sorghum and barley have no quotas, greatly impacting the bran market. According to statistics, from January to May this year, barley imports reached 4.389 million tons, up 1.1 times year-on-year; sorghum imports reached 4.269 million tons, up 2.0 times year-on-year.
In fact, supply exceeding demand is the fundamental reason for the sharp drop in bran prices. On the one hand, downstream hog farming has remained sluggish, and feed mills and pig farmers' demand for bran has continued to decline. On the other hand, wheat processing enterprises' capacity has increased, bran supply has become excessive, and bran is moist and has a short storage time and low silo capacity utilization.
Hebei Wuxing Flour Co., Ltd. is located in Gaocheng District, Shijiazhuang City, with a daily processing capacity of 300 tons. Company general manager Yang Xinliang told the reporter, "Pork prices are rising, and the farming industry is expected to recover, but current bran supply is large, and prices are unlikely to rise in the short term. However, in the long run, a recovery in the farming industry will help drive bran prices higher."
"Wheat strong and flour weak" continues
Trying every means to reduce costs
The situation of "wheat strong and flour weak" will continue. Persistently high wheat prices are squeezing some flour processing enterprises so hard they can hardly breathe
In addition to Hebei, other major wheat-producing areas have successively launched the minimum purchase price policy this year. This year the state did not raise the minimum purchase price of wheat, which to a certain extent will create a good environment for China's wheat processing, inventory and circulation, but it has not changed the overall downturn in the flour processing industry.
Some enterprise heads said that the minimum purchase price has propped up wheat prices, but the increase in flour prices is lower than that of wheat, and the situation of "wheat strong and flour weak" will continue. Persistently high wheat prices are squeezing some flour processing enterprises so hard they can hardly breathe. It is understood that flour processing enterprises are generally experiencing operating difficulties, with most choosing to suspend production or operate at half capacity, and enterprise operating rates are below 50%. Hebei Jindi Flour Co., Ltd. is located in Gaocheng District, Shijiazhuang City, Hebei, a major high-quality wheat-producing area, with an annual processing capacity of 100,000 tons, but actual processing is less than 60,000 tons, with an operating rate of less than 60%. Company general manager Wu Yongbin told the reporter that affected by the decline in bran prices, the enterprise has faced operating difficulties this year and is currently producing at break-even, waiting for the market to improve.