China Food & Agribusiness Bimonthly July/August 2021
China’s F&A sectors will continue to be impacted by the ongoing global pandemic, US/China relations, and domestic policies. Those factors will have a mixed effect on supply and demand, trade flows, and prices. One of the recent key impacts is inflationary pressure. This is the bullwhip effect, where supply and demand shocks ripple through the supply chain. The Chinese government has taken actions to curb price hikes of agricultural commodities, such as corn and pork, through increasing supply and other measures.
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The main highlights include:
• Farm Inputs: Domestic fertilizer consumption is entering off-peak season. And boosted by strong overseas demand, manufacturers are shifting their focus to export business. Strong exports and high raw material costs will keep prices at a high level.
• Grains & Oilseeds: The spot corn price is likely to face downward pressures. Yet, the price will have to maintain a relatively high level to incentivize more planting, higher import and higher substitution. Supported by strong CBOT soybeans and robust domestic feed use, the Chinese soymeal price has upside potential. Crushing margin is projected to improve in the near term.
• Animal Protein: While Chinese pork prices started to rebound from a deep decline, prices are expected to fluctuate before a rebound higher, due to the pressures of over-sized hogs and a high frozen pork inventory. Imports of pork and poultry will likely slow down further in the coming months, due to supply increases in the local market.
• Dairy: Strong production growth and import growth have been the main theme during 1H 2021, and the market is expected to be more than well-stocked as demand normalizes. This could start to drive some destocking, resulting in weaker import demand in 2H 2021.
• Beverages: Foodservice operators have engaged in selling alcoholic drinks by creating new consumption occasions, which will drive the growth of alcoholic drinks. Energy drinks continue to grow, with increasingly fierce competition between domestic and western brands
• Consumer Foods: China’s foodservice sector grew by 26.6% YOY in May 2021, achieving value sales of CNY 381.6bn. This number is 5.1% higher than the pre-Covid May 2019 number, indicating a stable recovery pattern. Missfresh and Ding Dong Maicai, the Chinese micro warehouse model of online fresh grocery players, are trimming IPO sizes due to growth pains.
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Where to go from here
Ping ChewHead of RaboResearch Food & Agribusiness - Asia Read more
Sandy ChenSenior Analyst - Dairy
Chenjun PanSenior Analyst - Animal Protein Read more
Lief ChiangAnalyst - Grains & Oilseeds
Jingyan SunAnalyst - Farm Inputs
Stacie WanAnalyst – Supply Chains and Beverages
Michelle HuangAnalyst – Consumer Foods Read more