China feed sales up on freshwater prices, shrimp recovery

Leading suppliers the Guangdong Haid and Tongwei Co. are set to increase revenues by 20 percent and 30 percent respectively, according to analysts at Shenyin & Wanguo, a securities firm in Shanghai. The prediction is based on growing demand in China for freshwater fish and shrimp for both domestic and export markets.

Shenyin & Wanguo predicts prices for freshwater species will rise by 10 percent to 15 percent year on year this summer in the key production regions of southern China. Shenyin & Wanguo analysts are also upbeat about a revival of the shrimp sector in 2014, after a lousy 2013. While south China was hit with torrential rain in May, the effect was not as bad as in 2013 and the key Leizhou Peninsula cultivation zone was largely unscathed, according to China Feed Industry Information Network.

The Shenyin & Wanguo forecast matches predictions by securities firm Qilu Securities that earlier this year flagged a remarkable 25 percent year on year increase in aquatic feed sales in 2014. It also suggested that sales to the Southeast Asian shrimp sector will grow 40 percent year on year. Aquatic feed sales by Haid and peers like Tongwei were hammered in 2013 by bad weather and disease. Shrimp feed sales slumped 20 percent and domestic shrimp feed sales dropped 30 percent year on year in 2013.

Shenyin & Wangguo is predicting an average margin of RMB 75-RMB 120 (USD 12.08-USD 19.33, EUR 8.88-EUR 14.22) per metric ton (MT) for Haid and Tongwei, a significant improvement on the previous year. Aquatic feed remains a low margin business but strong downstream demand from both fish and pig farms (fishmeal is fed to young pigs) means volume continues to grow in China. However the country remains dependent on volatile global price trends, with the rising prices of soybean imports an increasing driver of prices for end users of feed in China.

Even though 2013 was a bad year for shrimp farmers, feed makers lifted prices. Chairman of Haid, Xue Huari last year singled out a jump in fish meal and soy costs for his company lifting fee prices of feed in 2013, with shrimp feed up by as much as RMB 400 (USD 64.43, EUR 47.39) per MT and feed for freshwater fish up by between RMB 50 (USD 8.05, EUR 5.92) and RMB 100/ton (USD 16.11, EUR 11.85). China has become the world’s leading importer of soy yet has little pricing power — prices are set on overseas commodity exchanges like the Chicago Mercantile Exchange.

Rising feed prices are a worry for China’s export-focused aquaculture sector and its customers. Feed costs will possibly threaten China’s tilapia volumes. A report in the producing region of Guangxi suggests a 20 percent rise in feed costs in 2014. The Xi Jiang Capital News, a daily paper in the Xi Jiang region of southerly Guangxi province, reported how freshwater aquaculture producers are seeing strong demand for tilapia, pangolin and carp, but are worried production volumes will be threatened by feed costs.

“Aquaculture activity may decrease in 2014,” said Li Jianwei, general manager of the Wan Sheng Aquaculture Cooperative, a government backed fish farming group in Xi Jiang. Local tilapia farmer Liu Jiquan meanwhile explained how his 60 cages produced 500,000kg worth of fish in 2013, however an average wholesale price of RMB 13 (USD 2.09, EUR 1.54) leaves razor-thin margins after feed prices were taken into account. “Demand is good but we’re just about covering costs, profits are low,” said Liu.

Interestingly, volatile feed prices may be prompting integration in the feed and tilapia sectors: The feed-focused Tongwei Group is increasingly broadening its aquaculture activities, with subsidiary Tongwei Aquatic contracting more than 500 tilapia farmers to produce tilapia. Tongwei also offers free training and advice on feed that the firm says it supplies at an optimum mix and quality for higher yielding fish.

Haid meanwhile remains bullish on the overall outlook for China’s aqua feed demand, foreseeing further expansion of the aquaculture sector here. In a recent statement to investors, Haid has said it plans to sell 10 million MT of feeds in 2016 (almost double the 2013 figure), with aquatic feeds accounting for half that figure. Eager to take advantage of the market potential, Haid raised RMB 1.101 billion (USD 177 million, EUR 130 million) through a private placement of shares for feed and “micro-ecologies” projects in four key aquaculture provinces of China with construction set to take three years. Beijing-based CITICS Securities has predicted Haid’s aquatic feeds sector would increase significantly with sales of aquatic and pig feed in 2014 will surpass 10 million MT.

Ultimately there may be more than China to play for here. Haid, China’s leading producer of aquatic feed by volume, is aiming to lift its exports (which rose to an unprecedented 100,000 MT in 2013) thanks in part to sales to Vietnam’s shrimp sector. From its base in the southern port city of Guangdong the firm claims to have supplied 20 percent of the shrimp demand in Vietnam in 2013.

“Asia accounts for 89 percent of global aquaculture and 83 percent of global shrimp output. Countries like Bangladesh, Myanmar, Thailand and Indonesia,” according to its annual report.