Chinese livestock feed consumption is expected to drop between two and five per cent year-on-year in the 2022 calendar year, taking the edge off an otherwise very buoyant global feed grain market outlook.
Hog and broiler feed consumption is expected to decline due to lower livestock margins, while positive growth in layer, aqua and ruminant feed consumption will outweigh some of the downside.
Chinese hog prices are currently down 50pc to 60pc on last year, while feed prices are up.
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Losses for some sow-finisher farms are reportedly reaching CNY 500 (A$105) per head. The Chinese government has conducted three rounds of pork purchases for state reserves to support prices and will likely launch more rounds in the near future.
However, demand overall remains weak due to strict COVID-19 lockdowns in major cities in China and we expect the government will continue its zero-COVID policy in coming months, resulting in ongoing depressed food service sales and, consequently, pork prices.
To manage their margins, some small hog producers in China are replacing expensive corn with tubers and rice, while large-scale farms are lowering the soymeal content in rations. Obtaining the corn that will still be used is not straightforward. Before the Russia-Ukraine war, China was expected to import eight million tonnes of corn and 3MT of feed barley from Ukraine in 2021/22. So far, only half has been delivered. The Chinese government has been selling stale paddy rice for use in feed mills as a substitute, but substitutions are constrained by warehouse locations.
For China's own corn production, a resurgence of COVID cases and mass-scale lockdowns are raising concerns about its upcoming spring corn planting. Planting delays, due to reduced labour availability, are currently expected, which could increase the risk of frost damage later in the season.
While reduced feed demand in China will weigh on any further price upside in the global feed grains complex, the overall price environment remains very supportive for Australian feed grains to remain at elevated levels through 2022. Dryness in key growing regions globally and export constraints from the Black Sea will act to limit price downside through the year, including for barley. However, there are some downside risks to keep an eye on. Firstly, if we see successful peace talks between Ukraine and Russia. Secondly, if we see a large increase in cropping area outside of the Black Sea, specifically in the US and EU, which are both already seeing discussions about opening up area for cropping that is currently under environmental conservation. Lastly, if growing conditions in the US see a sudden improvement. US northern plains conditions have improved notably following recent rains, and eastern areas of the mid-west too, however other regions remain dry for now.
Coming into Australian planting, however, seasonal conditions look very favourable in most parts of the nation with the exception of South Australia, which still has regions that require higher soil moisture levels for a favourable planting program to unfold.
Current conditions point towards Australia seeing another above-average crop in 2023. Alongside still buoyant prices - despite lower Chinese feed grain demand - a good crop will be needed given the much higher input prices clawing away at farm margins.
