China's feed output in 2009 is projected to be around 140 million tons, an annual growth rate 2.4%. This was a 8.4% fall in growth compare to 2008, making it the feed industries lowest annual growth rate since 2001. The first half of 2009 saw a 5.4% lower growth rate compared to the same period in 2008. After the third quarter the market picked up, with strong growth seen in the final quarter. 2010 is expecting to see a continuation of this strong growth pattern.
China's feed production ouptut ranks it second in the world. With expanding fish breeding, poultry raising, feed penertration rates will increase and stimulate further growth of the feed industry with increased demand for feeds. Within the next 5 years it is projected that China's feed production output will surpass that of the United States, ranking it first in the world. There is substantial room for growth in the domestic feed instry pushing it to 500 billion Yuan.
The year saw lower profitability in the industry compared to previous years. In 2008 major industry-scale enterprises had a gross margin of around 9.7% on average, and a net profit margin of 3.5%, small business profitibility was lower than this. The lower the profitability has resulted in large-scale enterprises to expand production capacity, sales growth for three consecutive years to reduce the number of small enterprises.
The feed industry has continued to be under strong pressure from rising raw material costs. Genetically modified corn has obtained the bio-security certificate and will fill the demand for feed ingredents. It is believed that GM maize could be ready for use in 3-4 years and be used in industrial feed production. Raw material is expected to drop, giving the industry less pressure and more margins on profit.
Agriculture, forestry, animal husbandry and fishery industries' important investment theme is defensive inflation, the feed industry valuation levels and CPI trend correlation, defensive inflation and investment opportunities in the feed industry, is more fully reflected. Modest inflation is expected in the coming year, along with: a steady increase in meat prices, continued rising feed prices, meat consumption will also grow, driving increased demand for feed. Moderate inflation, will be beneficial to feed industry profitability and stable growth may occur for the next year.
Feed companies will continue the trend of polarization, the two types of enterprises will both see growth: One being the major national brands (New Hope, etc), the other being the small regional enterprises. The major players will see an upstream in raw material procurement and control of downstream sales, can reduce costs and increase profit margin. Leading enterprises will continue to expand their industry leadership, brand awareness and market share. Regional enterprises will continue to rely on their regional market advantage, and will also have room for growth.
In 2010 the feed industry in China is expected to continue it strong growth of it's recovery phase as seen in the last quarter of 2009, and is seen as a good investment in the short and long term.
By Jan Jie