China F&A Bimonthly May/June 2021
China’s economy is clearly recovering, but we think the recovery will lose steam. Pent up demand is dying out, while the Chinese government looks to cut back fiscal and monetary stimulus. Trade will not help economic growth as much as it did in the past few months, as part of the external demand for China's products was Covid-related. The main domestic downside risks to the short-term outlook are an unexpected resurgence of the coronavirus and a sharp rise in corporate defaults, while the main external downside risk is an increase in China’s geopolitical tensions.
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The main highlights include:
• Farm Inputs. With the end of spring plowing, domestic demand for agrochemicals and fertilizers gradually decreases, and the pace of price increases slows down. However, prices are expected to remain high due to strong demand in the international market and high raw material prices.
• Grains & Oilseeds. Both CBOT Corn and CBOT Soybean futures reached multi-year highs in April, as a result of weather concerns and speculative activity. China’s domestic corn prices were relatively stable, constrained by resurgences of African swine fever (ASF), massive imports, and large substitutions of other feed grains. As for soymeal and soy oil, prices rose, though to a lesser degree than international soybean prices. Thus, crush margins are deteriorating.
• Animal Protein. Chinese pork prices continued to drop, which induced a slowdown in restocking. A new wave of ASF outbreaks continues to spread, though at a slowing pace. Rising feed costs and increased poultry supply are pressuring poultry supply chains.
• Dairy. Strong production growth and import growth during Jan-Feb 2021 continue to point to a well-stocked market, as China seems unable to quench its thirst for safety stocks for now. The earnings reporting season confirms stable consumption growth at best. This could drive weaker import demand in 2H 2021.
• Beverages. Health and nutrition remain key drivers of soft drink consumption, and have led to continued innovation and growth in the plant-based protein drinks category. Cross-category innovation within beverages is leading to new growth opportunities.
• Consumer Foods. Growth in China’s foodservice sector picked up momentum in March 2021, with sales recording a strong rebound of 91.6% YOY growth. China’s probes into tech giants amid the antitrust squeeze will impact merchants on platforms. We expect merchants may shift their gears and diversify their channels to mitigate risk.
Note: From this issue, the China Food & Agribusiness Monthly will change to bimonthly.
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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