Reshaping grain trade? China moves to change animal feed recipes

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Pigs are seen on a family farm in Xiaoxinzhuang village, Hebei
Pigs are seen on a family farm in Xiaoxinzhuang village, Hebei province, China January 25, 2018. REUTERS/Dominique Patton

BEIJING, April 21 (Reuters) - China issued guidelines on Wednesday recommending the reduction of corn and soymeal in pig and poultry feed, a measure that could reshape the flow of grains into the world's top corn and soybean buyer.

China's corn prices surged more than a third in the most recent year following a drop in output and state stockpiles. The country started importing a lot more corn to compensate for the domestic deficit. So feed makers have already been switching to cheaper alternatives, especially wheat.

Benchmark corn and soy futures on the Chicago Board of Trade notched fresh multi-year highs on Wednesday, so China's new guidelines may not do much in the near term to temper soaring feed costs.

The Ministry of Agriculture and Rural Affairs said in a statement on its website the new guidelines are aimed at improving the usage of available raw materials and creating a formula that better suits China's conditions.

China consumes about 175 million tonnes of corn in animal feed each year, and that should increase as more livestock is raised on intensive farms using industrial feed.

The country also imports close to 100 million tonnes of soybeans to crush into soymeal for animals, agriculture ministry data shows.

The ministry said rice, cassava, rice bran, barley and sorghum were also suitable alternatives to corn, while rapeseed meal, cottonseed meal, peanut meal, sunflower meal, distillers dried grains, palm meal, flaxmeal, sesame meal and corn processing byproducts were good options to replace soymeal.

The guidelines may only affect firms that were not already keeping up with the trend towards substitution, Li Hongchao, senior analyst at trade website, said.

Greater feed use of wheat, which has more protein than corn, has already cut demand for soymeal.

A wheat products trader, however, said it could have "a significant impact".

"Many feed producer clients are still using quite a bit corn. They have reduced the usage but haven't cut off corn completely," he said, declining to be named because he was not authorised to speak with media.

Some analysts questioned if China's massive appetite for imported feed grains would be reduced much by alternative feeds, which are produced in much smaller volumes than corn and soy.

"It's hard to see how this changes anything. If it was economical to switch to barley and rapeseed meal for rations, then firms would have already done it," said Darin Friedrichs, senior analyst at StoneX.

"The volume of soybeans the U.S. can load in a single day is larger than the yearly global export volume of cottonseed meal," he added.

The ministry also provided some suggested feed formulations depending on the region of the country.

Those included reducing corn by at least 15% in pig diets in Northeast China by using rice and rice bran, or using sorghum, cassava flour, rice bran meal and barley to replace corn in pig feed in southern China.

In some regions, it recommended eliminating soymeal completely and replacing it with other meals.

For pig feed only, if hog production went back to levels at the end of 2017, and feed producers substituted corn and soymeal in accordance with the recommended ratios, it would cut corn use by 40-50 million tonnes, and reduce soymeal use by 4-8 million tonnes, according to Lu Min, analyst with brokerage Zhaojin Futures, citing a rough estimate.

Analysts and industry sources said, however, it would be difficult to give total estimates on exactly how much corn and soymeal will be cut following the guidelines, as for example, under some of the recommended diets, use of corn is cut, but more DDGs, corn protein power, and amino acids are suggested, which are made from corn.

"Also, this is just a suggestion to companies, not forceful (rules) they must implement. Whether firms will choose to substitute or not depends on the cost," said Wang Xiaoyang, analyst with Sinolink Futures, adding that in reality, some feed producers have already substituted corn and soymeal at a much higher ratio than the official recommendation.

"The cost is the fundamental factor," Wang said.

The table below shows the recommended changes by region for pig feed:

Reporting by Dominique Patton; Editing by Jacqueline Wong

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