Feed costs plunge sharply, the breeding industry welcomes a warm winter in Q4
This year global corn and soybean harvests were abundant, and global agricultural product prices have continued to decline. With feed costs falling sharply and the meat supply-demand situation improving significantly, the breeding industry may welcome a “warm winter” in Q4.
Feed costs plunge sharply, breeding industry welcomes a warm winter in Q4
November is already drawing to a close, and compared with the gradually cooling weather, the breeding industry is quietly warming up. During this year's Mid-Autumn Festival and “National Day” double holiday period, demand for breeding products showed a “peak season without prosperity” pattern, and the market was once rather pessimistic about the prospects for the breeding industry in Q4, but with feed costs falling sharply and the meat supply-demand situation improving significantly, the breeding industry may welcome a “warm winter” in Q4.
Feed costs plunge sharply
This year global corn and soybean harvests were abundant, and global agricultural product prices have continued to decline. US soybean futures prices have recently been hovering at 1000 cents/bushel, a nearly 5-year low. Although agricultural products saw a brief rebound in November due to US transportation problems, the pattern of oversupply has not changed, and global agricultural product prices are expected to remain at low levels for the coming months.
October is the US soybean harvest season, and the time point when large volumes of low-priced new crops are shipped to China will be concentrated in the coming months, which will inevitably affect domestic feed production costs, and prices for feed such as soybean meal have some room to fall.
As of November 21, domestic soybean meal spot market quotes were generally above 3400 yuan/tonne, with quotes in some regions even exceeding 4000 yuan/tonne, while the price of the main contract in the futures market was still below 3000 yuan/tonne, which reflects that market investors generally expect soybean meal prices to be pessimistic in the future, and as time passes, the futures-spot price gap will also gradually narrow.
In addition to soybean meal, the price of corn, another major feed ingredient, has also remained sluggish. Due to ample market supply and insufficient terminal demand, corn prices have trended weakly. Since September, the decline in domestic corn spot prices has already exceeded 10%.
According to estimates by the China Grain Network, the 2014 national corn total output was about 424.6 billion jin, a slight decrease of 2.75% from the previous year, but due to large inventories and import volumes, the supply-demand situation is not optimistic. In particular, after this year's autumn harvest, farmers generally adopted emergency selling methods for convenience in handling, and the listing of large volumes of new corn pressured prices. The fall in corn prices will also significantly reduce feed costs, which may be reflected in feed sales prices over the next two months.
Pig inventory declines significantly
The pig market was rather turbulent in the first three quarters, especially in September and October when pork prices did not strengthen as the market expected, but instead began a 10-week consecutive price decline from September 3, which dealt a relatively big blow to the confidence of market breeders.
Weekly data released by the Ministry of Agriculture showed that as of November 12, the national pork market price was 23.19 yuan/kg. Although it continued the previous decline, it was only down 0.01 yuan/kg from the previous week, and prices showed a trend of stabilizing. After entering late November, pork prices in various regions began to stabilize and showed increases of varying degrees.
The reporter learned that the main reason for pork prices halting their decline was the drop in inventory. In August, the national average price of piglets fell 15% year-on-year, which means the breeding industry's profits were poor, and breeding enterprises' willingness to restock was rather low.
⟧In early September, breeding disease outbreaks appeared in the north, which made things worse for the breeding industry and directly led to a wave of large-scale selling, with many pigs being concentrated and brought to market early in September and October, and the concentrated listing led to sluggish prices. Data showed that the average weight of pigs brought to market in October was 1.57 kg less than in the same period last year. At the same time, total pig inventory continued to decline in October, and the share of medium and small pigs in inventory fell another 0.5 percentage points from September, which reflects that piglet restocking remained sluggish in October.
In addition to piglet data, the inventory of breeding sows also declined considerably. Ministry of Agriculture data showed that in September, breeding sow inventory had already fallen 12% from its historical high. In October, sow culling rose sharply by 20% month-on-month, which means that breeding sow inventory in October will continue to decline.
According to the general pattern of pig breeding, piglets need a 4-month fattening period, and restoring the number of breeding sows also takes time, so it can be inferred that pig supply at year-end will not be especially ample, and the situation of excess pig supply has been greatly improved.
Looking forward to the year-end stocking market
On November 7, the Chinese lunar solar term “Start of Winter” had already passed, temperatures across the country have dropped noticeably, and market demand for meat will gradually increase. Unlike previous years, this year's avian influenza and other epidemic conditions were not serious, with only a small-scale outbreak in September, and two months later, consumers have gradually forgotten it.
Last week, pork consumption in markets across various regions began to increase, and pork prices have already risen somewhat, with increases varying by region, mostly between 2% and 3%. Entering mid-to-late November, the year-end stocking market has already begun. At present, various regions in the south are successively entering the season for curing bacon, and at the same time, slaughtering enterprises in various regions will also successively begin stocking for year-end, pork demand is expected to continue rising, and the year-end stocking market is worth looking forward to.
The situation of falling pork prices at the end of last year will be difficult to reproduce this year, because at the end of last year the nationwide trend of strict economy in catering had just begun, the market reacted slowly, and supply far exceeded demand, leading to the first decline in pork prices during the Spring Festival. After nearly a year of capacity reduction, the supply situation this year has already reached a reasonable balance. Although there is still market debate over how much prices can rise, market participants generally expect the breeding industry to definitely have a relatively “warm” winter this year.
What industry insiders, including breeders, are most concerned about is whether the breeding industry will rebound vengefully after profits recover this year.
The concentration of China's breeding industry is gradually increasing, small breeding enterprises with poor ability to withstand market price risks are going bankrupt one after another, while large breeding groups are rising. The pace of capacity growth should not be underestimated. Several major breeding groups such as COFCO, Huaxi Hope, Wens, Chuying, Zhengbang and CP have all made large-scale investments in building pig breeding bases in Jilin. It is expected that after all these projects are completed, Jilin's pig slaughter capacity will double to 30 million head. But after the breeding industry's profits improve at year-end, the construction of these projects will be greatly accelerated, and next year's pig breeding industry profits still should not be overly optimistic.