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China Agribusiness Report Q1 2010
Business Monitor International, Nov 2009, Pages: 70
China Agribusiness service provides proprietary medium term price forecasts for key commodities, including corn, wheat, rice, sugar, cocoa, coffee, soy and milk; in addition to newly-researched competitive intelligence on leading agribusiness producers, traders and suppliers; in-depth analysis of latest industry developments; and essential industry context on China's agribusiness service.
As with much of the rest of East Asia, China faced extreme weather conditions in the second half of 2009. A long drought across the important grain areas of the Northeast region will likely see output of corn, China's most significant grain, drop in 2010 as yields fall due to water shortages. Soybean production, also based in the Northeast, will suffer too. The Northeast has not been the only area to suffer from water shortages. On the other side of the country in Guangxi, another important crop, sugar cane, has been hit by dry weather and we have revised down our forecasts for 2010 sugar output. While the Northeast has been drying out, China's south east coastline has been lashed by tropical storms, though these will likely have little impact on total agricultural output.
High grain stocks carried over from the bumper harvest of 2009 when the government increased purchasing to support prices will mean that despite the drought, there will be no shortages of grain crops. This is welcome news for the livestock and dairy sectors both of which are recovering from crisis. China's pork producers suffered badly in the first half of 2009 from a combination of oversupply, weak demand and the H1N1 influenza (swine flu) outbreak. Since the start of H209, however, a rapid rise in pork prices has re-energised the sector. The recovery was started by government intervention to buy up frozen pork supplies to help support prices. This has come along with a fall in pig numbers as farmers reduce their herds. Together, this saw prices climb by almost 20% from June to September. This rising trend will see production grow strongly going into 2010, which ultimately should prevent prices reaching the peaks seen in 2008. In 2009, we estimate pork production to have climbed above the level seen in 2006 before the disastrous outbreak of blue ear pig disease.
The dairy sector has also been recovering strongly following the melamine adulteration scandal of 2008. Demand for Chinese dairy products has returned and most of the country's dairy majors have moved back into profit following the losses recorded in 2008. The return of confidence in the sector can be seen in the flurry of activity from overseas private equity firms through the middle of 2009. In June, US private equity firm Kohlberg Kravis Roberts & Co invested in Anhui-based Ma Anshan Modern Farming (Modern Dairy). The firm said its investment would help Modern Dairy to rapidly increase the number of large-scale farms it operates. This was followed in July by China National Oils, Foodstuffs and Cereals Corp and Hopu Fund's purchase of 20% of Mengniu, and in September another US private equity firm, the Carlyle Group, bought a 17.3% stake in infant formula maker Guangdong Yashili Group.
These deals are a sign of the potentially huge opportunities that will open up in the coming years to supply food products to China's vast population. While much of the population still lives in relative poverty, the large and growing middle class will demand an increasingly varied and sophisticated diet, especially as their exposure to worldwide consumption trends increases. This will drive demand for meat and dairy products and a wider range of processed foodstuffs.
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