Feed prices in China have surged sharply due to the conflict in the Middle East

Rising grain prices caused by the war in Iran are driving up animal feed costs in China, the world’s largest pig market, adding pressure on producers already suffering from weak demand and pork prices at a 16-year low, Reuters reports.

Since the war began on February 28, soybean meal and corn futures—two key feed ingredients—have risen to multi-month highs on the Dalian Exchange, driven in part by rising oil prices, higher freight rates, and rising fertilizer prices, two analysts said.

In March, spot prices for soybean meal and corn in China rose by more than 200 yuan per tonne and by around 100 yuan per tonne—7% and 4%, respectively—driving up real feed costs.

According to an analyst at Shanghai JC Intelligence Co. According to Rose Wang, prices for other feed ingredients, including lysine and methionine—essential amino acids—as well as fishmeal and vitamins A and E, have risen by 6% to 77% this month due to the war.

“Prices for most raw materials used in animal feed increased significantly in March, partly due to the ongoing conflict in the Middle East,” said Lin Guofa, senior analyst at consulting firm Bric Agriculture Group.

Excess Capacity and Weak Demand

Chinese pork producers, which account for half of the global pig herd, are facing rising costs despite falling pork prices due to excess capacity and weak demand.

On Monday, China’s most traded pork futures contract, DLHcv1, fell to a low of 9,980 yuan (US$1,448.16) per tonne. According to the JCI, pork prices fell to 9.69 yuan per kg, the lowest in 16 years.

“Raising a pig weighing approximately 60-62.5 kg currently costs 12.2-12.5 yuan per kg. This means farmers lose 280-350 yuan on each pig sold,” said Lin.

Pork Price Fall, Negative Margins

Small-scale farmers, who account for less than 30% of China’s pork production, are at risk of going broke because they are particularly vulnerable to price fluctuations, analysts said.

“The choice for small-scale farmers now is either to sell their pigs cheaply or to grit their teeth and ride out this price drop, then wait for pork prices to recover,” said Fu Zhenzhen, a feed analyst at Beijing Orient Agribusiness Consultants.

Li, a 600-head pig farmer in the northern province of Hebei, said he has been losing money since last year.

“We’re literally being burned alive right now. Pork prices are very low, but feed costs rose sharply in March,” Li said.

Since last year, Chinese authorities have stepped up efforts to reduce excess production capacity, urging breeders to reduce their sow herds and control slaughter rates, and recently purchased frozen pork for government reserves to stabilize prices.

At the end of December, China’s sow herd totaled 39.61 million, remaining above the normal level of 39 million.

“Going forward, pork prices will largely depend on how aggressively companies reduce their herds,” said Pan Chenjun, senior animal protein analyst at Rabobank in Hong Kong.

Tags: China, prices, compound feed