Feed prices have been raised at least three times this year. What are the chain effects of the rise in soybean meal prices?
"This year's feed materials are too 'crazy'." Zhao Qingyuan (a pseudonym), the head of a medium-sized feed enterprise in Guangdong, sighed. He has been deeply involved in the feed industry for many years, and has also experienced the price fluctuation of feed raw materials such as soybean meal and corn. However, it is really a "long time to see" phenomenon that feed prices rise at least three times due to the sharp rise in raw material prices in a short period of time less than three months after the beginning of the year.
Since this year, there have been three general price adjustments in the domestic feed industry, with a cumulative increase of 200 yuan per ton. All feed enterprises will follow suit. However, this still cannot offset the cost increase of 350~400 yuan per ton. Therefore, since late March, some feed enterprises have raised the factory price of feed again, with an increase of 80~100 yuan per ton.
Zhao Qingyuan explained that the reason why there was no general increase was that the feed industry, taking into account the current deep losses in the downstream aquaculture industry, if the feed price continues to rise, it is likely that the aquaculture enterprises will be unable to support it, so they choose to withdraw, which will ultimately affect the later demand of the feed factory. However, this option can only be temporary. At present, the production of feed has already lost money. If the soybean meal and corn rise again, the feed enterprises can hardly bear it.
The soaring price of feed raw materials will also bring a chain reaction. If the current price of soybean meal is maintained, its demand will be significantly reduced, and the soybean import demand will also be further reduced this year; The price of feed is soaring, the price of livestock and poultry meat is falling, and the scale of the breeding industry is bound to shrink.
The price of raw materials has risen continuously
In feed, soybean meal and corn are the main components, and soybean meal accounts for more than 60% of feed protein. The price change of the two directly determines the profit of feed enterprises.
Zhao Qingyuan said that in December 2021, the price per ton of soybean meal arrived at the factory was only 3300 yuan, reaching a maximum of 3800 yuan. If other expenses are appropriately reduced, the enterprise can still guarantee a little profit. However, in 2022, the futures and spot prices of soybean meal hit new historical highs for many times. At present, the main contract price of soybean meal futures has reached about 4200 yuan per ton, up 1000 yuan, or more than 30%, compared with the beginning of this year; In the spot market, the price of soybean meal per ton reached about 5000 yuan, up more than 50% compared with the beginning of the year.
As of March 30, the spot price of soybean meal in Guangdong was 4900 yuan per ton, 5000 yuan per ton in China and 5050 yuan per ton in Henan. The price of corn is 2780 yuan per ton in Liaoning, and 2890 yuan per ton in Guangdong. The transportation from Liaoning to Guangdong is still a small loss.
Since Zhao Qingyuan's company mainly produces meat and poultry feed and pig feed, the former needs to add 19% soybean meal, and the latter needs to add 20%. According to his accounting, just because the price of soybean meal has risen, the cost of feed per ton has increased by 350 yuan.
At the end of February 2022, the international situation is volatile. The price of corn, which has been relatively stable for more than one month, has also started to rise, rising by 50~80 yuan per ton. As alternative crops of corn, barley and sorghum also increased by 80~100 yuan per ton.
After three consecutive increases in the ex factory price of feed, Zhao Qingyuan's company's sales volume had not been greatly impacted in February, but the gross profit had declined rapidly. In March, while the sales volume of products declined, the company began to lose money.
Zhao Qingyuan said that the reason for the decline in sales was that, considering the large pressure of cash flow, some free range farmers with low breeding level had voluntarily given up and no longer sold feed on credit. Of course, the life of feed enterprises is not easy. "How many feed factories can bear the loss of one or two hundred yuan per ton for a long time?"
Under the rising cost, some enterprises even produce adulterated feed. On March 21, the Market Supervision Bureau of Ziyang City, Sichuan Province announced that the typical cases investigated and dealt with in the "Spring Thunder Action 2022" law enforcement action involved a feed processing company producing feed without standard.
On March 23, Hubei Feed Industry Association also issued a proposal, calling on the industry to put an end to counterfeiting and ensure product quality. It is strictly prohibited to reduce costs and increase efficiency, cut corners, arbitrarily reduce or do not use high-quality protein feed and feed additives during production, and it is strictly prohibited to pass inferior food as high-quality food, use fake food as fake food, or disrupt the market order.
Behind the soaring price of raw materials
The soaring price of feed raw materials is caused by multiple factors, including historical factors as well as domestic and foreign factors.
Shen Yang, a research fellow of Brick Consulting, told the First Finance and Economics reporter that from the demand side, the pig production capacity has been at a high level after the continuous recovery from 2020 to 2021; Although poultry will enter the stage of slow capacity reduction from 2021, the capacity is still at a high level.
From the supply side, after the continuous de stocking from 2016 to 2020, the corn stock has been tight. Even if a large number of corn, barley and sorghum will be imported in 2021 and a large number of wheat will replace them, it will only stabilize the corn stock and not further decline. On the whole, the corn inventory is still at a low level for nearly 10 years.
Zhang Zhixian, vice president of China Grain Network Yida Research Institute, told the First Finance and Economics reporter that the increase in domestic soybean meal prices was related to the tightening of soybean supply in the international market from an external perspective.
He explained that soybean meal is pressed from soybean raw materials. Although soybean meal is basically pressed and produced in China, and the proportion of direct imports is very small, more than 90% of soybeans need to be imported from abroad, and even a large proportion of pressed rapeseed needs to be imported. More than 60% of China's soybeans are imported from Brazil and Argentina. However, since October last year, due to the drought caused by La Nina, the soybean production capacity of South American countries is generally expected to decline.
Shen Yang mentioned that Brazil's expected soybean production reduction, coupled with the strong appreciation of the domestic currency, and the lack of willingness of Brazilian farmers to sell soybeans in the early stage, led to the arrival of domestic soybeans in Hong Kong in February of only about 5 million tons, increasing the pressure on domestic soybean meal supply.
In addition, since Russia and Ukraine are both big agricultural exporters, grain exports in the Black Sea region are blocked, while more than 20% of China's corn and barley imports come from Ukraine, the market is worried about the impact of imports. The turbulence of the international situation has led to the rise in the price of staple agricultural products. Many countries have introduced policies to restrict grain exports. At the same time, in April, spring sowing in the Northern Hemisphere and summer sowing in the Southern Hemisphere will be carried out successively. As major fertilizer exporters in the world, Russia and Belarus have had a bad export of fertilizer and the global price of fertilizer has soared, which has triggered global concerns about grain production in the new year and supported global food prices to remain high.
At present, although feed enterprises can conduct downward through increasing feed ex factory prices, the increase is less than the increase of feed costs, so the pressure on them is not small.
Shen Yang said that although the pressure on the feed factory was great, it only lost gross profit or depreciation of some fixed assets. If the payment for feed sales was normal, its cash flow was not affected. However, the downstream aquaculture industry continued to lose money. While the demand decreased, the feed payment credit situation continued to increase, which increased the difficulty of the feed enterprise's operation, and the industry suffered losses.
At present, although some enterprises are "lying flat", some enterprises are actively looking for low-cost raw materials. According to the feedback from Guangdong traders, since the end of February this year, many feed enterprises and traders in Guangdong Province have increased their imports of dried cassava to replace corn. At the end of February, the imported dry cassava was 500~600 yuan lower than that of corn per ton, and still 400~450 yuan lower than that of corn in March.
Chain reaction under the strong price of raw materials
The strong price of feed raw materials will also bring a series of reactions.
For example, if the current price of soybean meal continues to be maintained, the demand for soybean meal will decrease significantly, and the demand for soybean imports in 2022 is bound to decline further. This will directly lead to a decline in domestic soybean oil production. In addition, as a substitute for soybean meal, the import of dry cassava and other cereals is expected to increase.
Moreover, because the feed cost accounts for 70% of the pig breeding cost, the fluctuation of feed price has a great impact on the actual income of farmers.
Shen Yang said that for some breeding enterprises, they have their own feed processing business. Faced with the pressure of sharply increasing feed costs, these enterprises or farmers use the feeding mode of "70% to 80% full" to avoid starving pigs as the bottom line; Or adjust the feed formula, reduce the crude protein content in the feed, and supplement it with cheap raw materials such as wheat bran, rice bran and fruit residue, so as to reduce the breeding cost, provided that the basic feed indicators are met.
Considering the soaring feed price and the falling price of livestock and poultry meat, the scale of the breeding industry is bound to shrink. According to the analysis of industry insiders, it is expected that there will be a wave of panic selling of livestock and poultry in April. The direct incentive is "no money to buy feed, no one to credit".
Shen Yang said that only after the periodic capacity reduction can the livestock and poultry prices rebound periodically, but it remains to be seen whether the cycle can reverse.
In addition, after the outbreak of African swine fever in 2018, the feeding mode of kitchen waste was prohibited, resulting in a large increase in domestic feed demand. Industry insiders believe that if kitchen waste can be collected and then used as feed through high-temperature sterilization, domestic demand for feed grains can also be reduced.
In view of the high dependence of feed grain on foreign countries, China has also successively issued relevant documents.
The Work Plan for Reduction and Replacement of Corn and Soybean Meal in Feeds issued in March 2021 requires "reducing the proportion of corn and soybean meal in feed", aiming to "adapt to the new situation of tight supply and demand of bulk feed raw materials, improve the efficiency of raw material utilization, build a new formula structure of ration based on national conditions, accelerate the reduction and replacement of corn and soybean meal, and promote stable supply and market of feed grain".
In December 2021, the Ministry of Agriculture and Rural Affairs issued the Fourteenth Five Year Plan for the Development of the National Animal Husbandry and Veterinary Industry, which once again clearly defined "promoting precise ingredients and materials, and promoting the reduction and replacement of corn and soybean meal". At the same time, it is also proposed to "build a modern forage industry system", implement the grain to feed system according to local conditions, increase the planting of whole plant silage corn, improve the self-sufficiency rate of alfalfa, oat grass and other scarce forage, develop and utilize new forage resources, and promote the efficient utilization of non grain forage resources.