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China Agribusiness Report Q1 2012
Business Monitor International, Dec 2011, Pages: 83
Business Monitor International's 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.
BMI View: China's agriculture industry will continue to be strongly affected by government policies in its drive to ensure national food security. However, the government's recent acknowledgment of the need for higher corn imports in the future show its gradual acceptance of the fact that it will grow inevitably dependent on imports. Verbal acceptance of genetically modified (GM) seeds is another indicator of a slight recalibration of the government's previously staunch stand against GM products.
Key Forecasts
- Soybean consumption growth to 2016: 60.5% to 105.7mn. Demand for pork, will be the dominant driver for soybean demand.
- Pork and poultry consumption growth to 2016: 36.8% and 31.% to 72.5mn tonnes and 16.9mn. Continued consolidation of the Chinese meat industry should support large-scale production and increase economies of scale in production so as to meet the growing demand of a national diet that is increasing its protein intake.
- Whole milk powder production growth to 2015/16: 21.0% to 1.6mn tonnes. Whole milk powder production will be the outperformer among dairy products as more consumers take to the cheap and easily stored milk product.
- 2012f real GDP growth: 8.1% (9.2% in 2011)
- 2012f consumer price inflation : 3.2% ave (lower than 5.6% in 2011)
- 2011f Central Bank policy rate: 6.06% ave (lower than 6.56% in 2011)
Industry Developments
The CNGOIC, China's official crop thinktank, recently released forecasts for a record 5mn tonnes of corn imports in 2011/12 - a significant reversal of its assertion in June 2011 that China would be largely selfsufficient in the grain. Such a significant rise in imports would immediately see China become the fifth largest importer of corn in the world behind Japan, Mexico, South Korea and Egypt. That said, we believe that this figure is likely too conservative and would not be surprised to see a revision of that forecast upwards as the season progresses. In fact, the US Grains Council projects the figure to reach as high as 10mn tonnes.
China's sugar forecast production deficit has not been overlooked by the government. According to the 12th Five Year Plan, the Ministry of Agriculture will invest in improving water conservancy and irrigation facilities in key sugarcane producing regions such as Guangxi province, southwestern Yunnan, Leizhou peninsula of Guangdong and northern Hainan. Other plans to stabilise cane acreage, improve yields and raise the sugar content also pose upside risks to production. However, we believe that results will only materialise in the long term. We maintain that strong demand from the food and drink sector will continue to keep domestic sugar demand strong, keeping China increasingly dependent on imports going forward.
We do not expect pork prices to collapse anytime soon and only foresee limited downside for prices on the back of falling ending stocks and robust demand for the meat. In particular, as January and February are months with seasonally-high demand for pork due to the Chinese New Year celebrations, we do not rule out the possibility of a short revival of sector inflation during that period, a view shared by major Chinese pork producer, Zhongpin.
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