Fading Bird Flu Concerns To Revive Asia Feed Demand - ASIA - A slow, but steady return of chicken meat to Asian dinner tables will revive the feed industry in the region, but it may take until late May for feed and grain demand to return to levels seen before the bird flu outbreak, traders and analysts said Tuesday.

The large-scale culling of fowl in China and other Asian countries following the epidemic in January and February left the mostly small-sized poultry farms cash-strapped and an estimated 300,000 tons of frozen chicken in the supply chain.

"Consumption has to digest that meat first, before chicken breeders have money to kick off a new round of breeding," said a Shandong-based grain importer who represents soy crushers in northeastern China.

Soft demand for feed in the first quarter, along with the high import cost of corn and soybeans, reduced crushing margins for most feed millers in Asia with some of them being forced to shut operations temporarily, traders said.

With its high dependence on the poultry sector, millers are likely to see healthy margins again once a revival in demand for chicken meat translates to more demand for feed in major producing countries such as China and Thailand.

"As part of a food chain, we are at the mercy of the chicken breeders. (But) their confidence (about) the future means business for us," said the Shandong-based importer.

POULTRY CONSUMPTION RECOVERING IN THE REGION

"In Thailand, domestic chicken consumption has returned to about 70% of the normal level," said Pornsri Laurusawat, manager of Thai Broiler Processing Exporters' Association.

Thailand is the world's fourth largest poultry exporter after the U.S, Brazil and China. Chicken production in the country dipped as low as 40%-50% of normal levels when the bird flu outbreak was at its peak, the Thai Ministry of Agriculture and Cooperatives said last week.

In China, the popular Kentucky Fried Chicken, together with a number of other foreign and local fast food chains featuring chicken dishes, have reported that business is creeping back to normal levels.

In a sign of renewed export demand, Japan resumed imports from China by shipping a consignment of 220 tons of cooked chicken last week, the first such move since late January, said China's state-owned Xinhua News agency. Japan is China's biggest poultry export market with direct sales of 120,000 tons in 2003.

Japan has also started importing processed chicken from Thailand.

Demand is picking up in South Korea as well. "It seems OK now to eat chicken. Consumption has recovered," said a Seoul-based soymeal trader with an international trading house.

Similarly, Hong Kong resumed importing live chicken from mainland China, after a suspension of imports for two and a half months.

"We believe the first batch is around 7,000 live chickens a day, about one tenth of normal sales to Hong Kong," said an analyst at a Shanghai-based agricultural consulting firm.

FEED GRAIN DEMAND TO PICK UP BY LATE MAY

The steady recovery in poultry consumption, however, is yet to translate to increased demand for more soymeal and corn used to make feed, analysts said.

This is mainly because of the usual lag time in the poultry production cycle as newly raised birds will take two to three months before they reach the peak growth stage when feed consumption is the highest.

China announced itself free of bird flu in March, while Thailand is expected to do so in another month if there are no new cases.

Moreover, higher prices of soymeal in China during March, which resulted from stronger Chicago Board of Trade futures, have yet to fall back to reasonable levels reflecting local demand and supply, traders said.

Compound poultry feed prices in China rose 12.89% on year in the first quarter of 2004 at a time when chicken and egg prices are just recovering from the lows seen during the bird-flu outbreak, according to China Feed Industry Information Net.

Most poultry farms use a compound feed mix of corn, soymeal, feed wheat, and other additives.

"As a commodity with smaller trading volume, soymeal is a lot more volatile than corn," when it comes to price movement in the market, said Zhang Jianxin, a Shanghai-based analyst of feed market in Pansun Information & Technology Co.

Traders, however, said they expect demand for feedstuff to pick up by late May.

Soymeal producers in northeastern China have now lowered meal prices to around CNY3,200/ton ($1=CNY8.28), down 10% from a week ago, in an effort to clear existing stocks before they can boost crushing to take advantage of improving margins.

China usually imports 1.5 million tons of soybeans each month in June, July and August, before the new local crop hits the market. Traders said the same amount of imports are expected for this year.

Corn prices in Thailand are also showing early signs of an increase. Locally produced corn was offered Tuesday between 7.50 and 8.00 baht a kilogram ($1=THB39.63), up from around THB7.3 just a week ago, said an official with Charoen Pokphand Group.

"Demand from poultry farms has not fully recovered yet. But some people are (buying) corn in anticipation of rising demand later," said the official who declined to be named.

Source: eFeedLink - 28th April 2004