China F&A Monthly November 2020

China continues to purchase agricultural products from the US to fulfill its commitment under the trade deal. However, uncertainties about the next US administration’s position on China have cast a shadow over the scope of the ‘phase-one’ trade deal and the future trade outlook. Moreover, trade tensions between China and Australia have escalated to a phase that could lead to more trade sanctions on imports of barley, wine, and beef from Australia. China is expected to continue to diversify its sources in the long run. Meanwhile, China released more details on its ‘dual circulation’ economic strategy. There are opportunities for F&A industries to enhance the stability of domestic supply chains and reform value chains. China‘s economy continues to bounce back from Covid-19, with strong domestic demand driving recovery in production and downstream industries. The momentum in F&B sectors is expected to remain robust in Q4 and into 2021.

The main highlights for November include:

- Fertilizer and agrochemical prices will remain stable in the short term, driven by the coming winter reserve. Environmental protection inspections may lead to tight supplies and high raw material prices.

- To date, China has booked over USD 23bn in agricultural products, especially soybeans and corn. Additional procurement is expected in order to meet strong Chinese feed demand, to fulfill the phase-one trade agreement, and to build up higher strategic state reserves as a safe stock.

- Due to rising hog supplies, live hog prices declined by 18% YOY in early November, but remain high compared with historic levels. African swine fever risks are rising with the arrival of cold season.

- Milk prices have reached a six-year high on strong milk production growth. Dairy processing companies are trying to maintain a balance between driving sales growth and preserving margins as milk prices strengthen.

- Soft drinks and beer markets have rebounded due to innovative product assortments, enhanced marketing and sales promotions, as well as diversified sales channels. We expect Q3 and Q4 performance will help partially offset the losses of the first half of 2020.

- An ongoing, slow foodservice recovery is underway, with September foodservice sales declining by 2.9%. We forecast foodservice will decline by 16% in 2020 and rebound in 2021.

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  • Ping Chew

    Head of RaboResearch Food & Agribusiness - Asia
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  • Sandy Chen

    Senior Analyst - Dairy
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  • Chenjun Pan

    Senior Analyst - Animal Protein
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  • Lief Chiang

    Analyst - Grains & Oilseeds
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  • Jingyan Sun

    Analyst - Farm Inputs
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  • Stacie Wan

    Analyst – Supply Chains and Beverages
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  • Michelle Huang

    Analyst – Consumer Foods
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