As corn prices surge, China substitutes wheat, rice as feed

With corn (maize) prices rising to an eight-year high in the global market, Chinese grain importers are diversifying their suppliers.. More importantly, they are substituting the feed grain with wheat and rice.

However, this trend may be short-lived since the prices are expected to stabilise over the next few months before heading lower.

Also read: Soyabean seen driving global oilseed, edible oils production higher next season

The US Department of Agriculture’s Foreign Agricultural Service Post in China reported that the substitution rate of wheat is as high as 30 per cent. The post based its report on the proceedings at the China Feed Industry Expo and Conference in Chongqing last month.

The Chinese substitution move is one of the reasons why corn prices, which increased to $7.7 a bushel (₹22,175 a tonne) on May 5, have retracted to $6.65 (₹19,150) a tonne on Wednesday. Prices have also dropped after the USDA reported that corn stocks would increase by 250 million bushels by September this year.

Prices of agricultural commodities, particularly those used as feed, have surged since last year, as China, which accounts for over 310 million pigs of the 677.6 million produced globally for meat consumption, is trying to increase its sow production.

African Swine Fever impact

China, where the average consumption of pork is 30 kg a year per person, plans to increase hog production by 200 million. The move follows 150 million pigs dying and another 200 million being culled due to the outbreak of the African Swine Fever (ASF) in 2018 and 2019.

This led to the sow population falling to a 16-year-low in 2019. This resulted in the prices of pork, a sensitive food in China, zooming.

Following this, China accorded priority to increasing sow population that resulted in a strong growth in animal feed. This led to higher demand for corn and soyabean with their prices surging.

Record corn imports

According to the USDA, China is estimated to import a record 28 million tonnes (mt) of corn during the current marketing year to August. Next season, it could be 15 mt.

According to Netherlands-based Rabobank, hog feed consumption, which increased 6.5 per cent last year, will rise 11 per cent this year.

The bank said that other feed consumption will rise 7-8 per cent this year with soyameal offtake increasing 6 per cent. This will result in China importing 100 mt of soyabean this year, it said.

A considerable amount of wheat and rice will also be used for feed consumption, it said.

The USDA said that corn consumption for feed and other uses in China would rise 6.7 per cent this year. It reported that a record volume of old wheat and rice stocks were entering the feed plants as substitutes for corn.

Gain in prices

Chinese appetite for corn, mainly to be used as feed to increase its pigs production, has resulted in the feed grain’s prices rising 37.5 per cent this year. In turn, it has lifted the prices of soyabean by 18.75 per cent, wheat by nearly 7 per cent and wheat by 9.5 per cent.

According to the Pig Progress Website, sow production is expected to grow by 19.2 per cent to 613 million this year. Total pork production is forecast to rise by nearly 20 per cent to 49.27 mt.

The increase in production resulted in prices of piglets falling by half, while pork prices too declined sharply, according to a Chinese government report.

But the priority to raise hog production received a setback when a new ASF outbreak during December-February affected certain regions, mostly in north China.

‘ Piglet diarrhoea’

The USDA said participants at the Chongqing conference reported a decline in sow production in Henan and Shandong provinces by at least 40 per cent. However, China’s Ministry of Agriculture and Rural Affairs chief analyst Zhu Zengyong said that production capacity has recovered, though the speed of the recovery could be slow.

Rabobank said hog production dropped by 3-5 per cent during December-February each month but the current output was 10-15 per cent higher than in the year-ago period.

The Chinese Agriculture Ministry has claimed that the resurgence of ASF is not severe but some regions were affected by “piglet diarrhoea” early this year, the USDA said.

This affected the piglet survival rate, which declined nearly 10 per cent in January month-on-month and another 1.3 per cent in February. However, survival increased to 4.4 per cent in March.

Reining the surge

As a result, hog prices dropped over the past two months, while higher production costs were also playing spoilsport. It is for this reason that old rice and wheat stocks were released.

The impending harvest of corn in China and Beijing looking to source feed grains from other countries could rein in the surge in prices, according to analysts. The drop in prices is the key to increasing Chinese pork consumption, which dropped due to the Covid-19 pandemic.

Chinese sow production is expected to be back at pre-ASF impact levels next year. Thereafter, supply is expected to exceed demand, which could lead to pressure on feed grain prices.