China. Oilseeds and Products Annual. Mar 2014 March 12, 2014
MY14/15 total oilseed production is forecast down 2.6 percent to 57.2 million tons on expectations that cottonseed production may decline. With limited domestic production, soybean and rapeseed import trends remain strong as MY14/15 total oilseed consumption forecast rises to 131.2 million tons due to increasing demand for animal and aquatic protein and vegetable oils. MY14/15 soybean imports could reach 72 million tons (out of total oilseed imports of 75.8 million tons) from estimated 68 million tons in MY13/14.
Total MY13/14 oilseed production is forecast at 57.2 million tons from a planted area of 24.78 million hectares (MHa), both down 2.6 percent and 0.9 percent from MY13/14, respectively. MY14/15 total oilseed consumption is forecast at 131.2 million tons, up from an estimated 128.9 million tons in MY13/14. Rising consumer affluence supports this upward demand for animal and aquatic protein and consumption of vegetable oils. As a result, expansion in the crush sector, growth in the feed industry and advancements in concentrated animal and aquatic production are cumulatively spurring demand and the need for imports to supply domestic protein and oil sources.
Soybean imports in MY14/15 are forecast to reach 72 million tons (out of total forecast for oilseed imports of 75.8 million tons) from estimated 68 million tons in MY13/14.
Specific MY14/15 forecasts for oilseed categories include:
• Soybean production will decrease 1.6 percent from last year to 12 million tons based on planted area of 6.75 MHa and average yield
• Soybean imports will rise six percent to 72 million tons
• Soybean meal consumption will rise 5.3 percent to 55.8 million tons as feed demand recovers from animal disease incidents
• Soybean oil consumption will rise six percent to 13.8 million tons due to steady increase of income
• Rapeseed production will decrease to 14.1 million tons based on planted area of 7.51 MHa and average yield
• Rapeseed imports will increase slightly to 3.4 million tons
• Rapeseed meal imports will rise slightly to 190,000 tons
• Rapeseed oil imports are forecast at 1 million tons
• Peanut production remains stable at 17 million tons unchanged from MY13/14, based on planted area of 4.71 MHa and average yield
• Peanut imports remain low at 30,000 tons
• Peanut exports are forecast down to 600,000 tons
• Cottonseed production will decline by one million tons to 11.7 million tons due to an expected drop in overall cotton planted area
• Cottonseed imports will be driven by increased demand and diversified use and will reach 350,000 tons
Oilseeds Situation and Outlook
Overall, China’s domestic oilseed production remains stagnant while demand for oilseed products surges ahead. For MY14/15, low profits to major oilseed crops, like soybeans and rapeseed, keep planted area expectations to a low 24.78MHa and total production at 57.2 million tons, both down 0.9 and 2.6 percent, respectively, over the previous year. Future production prospects are further dampened by major oilseed crops lackluster revenue as available acreage is increasingly planted to more lucrative grain crops. Furthermore, inadequate production tools - from economies of scale, agronomic practices, technology resources and input quality – limit the potential for oilseed yield gains. Regardless of limited domestic production, consumption of animal protein and vegetable oils in China continues unheeded, fueled by rising affluence and consumer choices. In response to these dietary demands, China must supplement its domestic oilseed resources with imports, primarily from the U.S., Brazil, Argentina and Canada.
Cotton planted area is expected to fall in 2014, especially in the Yellow and Yangtze River regions, in response to a modified government support policy. Due to an uncertainty as to the impact of the new policy on cotton profit, farmers in these regions may plant alternative crops which could decrease cottonseed production by up to 1 million tons in MY14/15. Peanut farmers are expected to maximize acreage and production in MY14/15 due to positive profits, however, further expansion is constrained by limited land.
Expectations for growth in soybean production remain pessimistic given obstacles to expansion, such as low profits, yield limitations, lucrative alternatives and recently, subsidy reductions. Soybean production in MY14/15 is forecast at 12 million tons, down 200,000 tons from the MY13/14, on average yield of 1.7 to 1.8 tons/Ha and expected decline in planting area.
Low profit signals continue to negatively impact planting decisions in major production areas where more lucrative crops, such as corn and rice, are viable options. For example, for MY12/13, the National Development Research Council estimated that farmer returns were estimated at $619/Ha for soybeans versus $870/Ha for corn. More specifically, in the northwest (Heilongjiang), MY12/13 soybean profit totaled RMB1,590 ($245)/Ha, far below that of corn at RMB4,140 ($637)/Ha or rice at RMB6,000 ($923)/Ha. The Heilongjiang local government estimated that even considering above market government purchase subsidies, soybean output value per hectare was equivalent to 56 percent of that for corn, and if farm labor was included as a cost, the net profit from soybeans was negative. Soybean farmers also continue to struggle to boost yields which have remained constant for several years. Major impediments to yield growth, include small-scale of farms, lack of agronomic techniques, and limited access to better inputs, are unlikely to change in the near future.
Although crop alternatives are limited in some northwest and Inner Mongolian regions due to short growing days, those farmers with options have already made the switch from planting soy to grains. CNGOIC’s February report estimated MY13/14 Heilongjiang soybean production fell to 3.9 million tons based on a record low planted area of 2.43 MHa, compared to 2.66 MHa in MY12/13 and 3.4MHa in MY11/12.
To stimulate lagging production, the government has maintained a soybean production support program. Under this policy measure, government-designated companies procure and stockpile soybeans when the market prices falls below a minimum set by the government. Similar to last year, from November 22, 2013 until April 30th, 2014, the government is offering to purchase an unlimited quantity of Northeast province (Inner Mongolia, Heilongjiang, Liaoning and Jilin) soybeans at RMB4,600 ($742)/ton.
However, recent policy directions indicate that soybean support policy is changing as domestic commodity priorities are readjusted. Beginning in MY14/15, the soybean subsidy program will change from a minimum price procurement program to a “direct subsidy payment plus target price” program to take the program in a more market oriented direction. Many industry insiders believe that soybean planted area won’t increase as the “target price” is unlikely to be higher than the floor purchase price.
In general, the government support purchase price has been above world market price and cheaper soybean imports have kept a downward pressure on domestic soybeans. Based on China National Grain and Oils Information Center (CNGOIC) data, the December wholesale soybean price averaged $695/ton in Heilongjiang, down four percent over January 2013.
As of February 5th, pursuant to its minimum price procurement program, the government has purchased approximately 2 million tons of the MY13/14 soybean crop, a significant jump from 800,000 tons purchased in the previous year, according to CNGOIC, to augment relatively low stocks. Government-held reserves of soybeans were estimated at 5.5 million tons as of November 2013, bringing total soybean reserve estimates in excess of 7 million tons. MY14/15 total ending stocks are forecast at 13.9 million tons. Depending on the domestic oilseed product market situation, the government may auction older stocks as a means of market stabilization.
Soybean imports are expected to continue an upward trend. The crush industry will continue to exert strong demand to secure resources needed to supplement declining domestic production and meet rising consumption. MY14/15 soybean imports are forecast at 72 million tons, up 4 million tons (four percent) from an estimated 68 million tons in MY13/14. Relatively low ending stocks in MY12/13 supports an additional import of 8 million tons over last year to bring MY13/14 imports to 68 million tons.
Brazil remained China’s largest soybean supplier in MY12/13 with total exports of 29.15 million tons and 49 percent market share. The United States had total exports of 22.07 million tons in MY12/13, down from the 23.06 million tons in MY 11/12.
China’s soybean exports, mainly destined for food use, are forecast at 280,000 tons in MY14/15, slightly higher than the estimated 250,000 tons in MY13/14. China's soybean export volume remains small and stable and is unlikely to change significantly as traditional markets, like Korea and Japan, source food soybeans (both GMO and non-GMO) from several suppliers, including the US.
Soybean crushing sector continues to expand
CNGOIC's estimates show total annual soybean crush capacity reached 140 million tons per year at the end of 2013. Despite crush plants low utilization rate, both new construction and expanded renovations to existing facilities raised daily crush capacity to 40,000 tons per day. An estimated 78 percent of crush plants are located along the coastal region to facilitate the receipt of imported soybeans.
Sustainable Food Security Measures
The sustained rise in soybean imports, which has grown from 16.9 million tons in MY03/04 to an estimated 68 million tons in MY13/14, highlights China’s dependence on foreign suppliers and accentuates its vulnerability in meeting food security targets. The serious drought in the United States in mid-2012 triggered a soybean and corn price spike which reinvigorated government and private sector concerns over soybean supply insecurity.
To address this concern, China’s State Council published a China Food and Nutrition Development Plan (2014-2020) in January which stressed the need to develop new technology for China’s traditional soybeans to meet the growing nutritional demand of consumers. In addition, China will embark on new measures to increase its productivity through sustainable agriculture production. The measures include treatment of polluted land, restoration of forests and wetlands and restrictions on use of underground water in certain areas.
China’s agricultural and food security policies aimed at stimulating grain production and yield increases include an array of financial incentives. China’s total comprehensive agricultural subsidies (including direct payments to grain farmers based on acreage, agricultural inputs subsidy, agricultural machinery purchasing subsidy, and seed subsidy) reached RMB165.1 billion ($26.2 billion) in 2012, up from the $22 billion in 2011. The subsidy in 2013 is likely to exceed the 2012 level and continue to climb in 2014.
Soybean support policy amended
Historically, Northeastern region soybean farmers have benefitted financially from the government’s “minimum price procurement” program. However, the 2014 central government’s No. 1 Document declared a trial program of direct subsidy to soybean farmers in the four northeast provinces (Heilongjiang, Jilin, Liaoning and Inner Mongolia) which will be based on a target price (to be announced by the government before planting - likely in late April or early May). Farmers will receive a subsidy representing the difference between the market price in autumn 2014 and the government target price. Most industry sources suggest that the target price for soybeans will not be less than the current MY13/14 minimum purchase price of RMB4,600/ton to avoid a further decline in soybean planting area in MY14/15.
Domestic biotech-free soybean production policy unchanged
China’s non-GMO domestic soybean production policy remains unchanged. Domestic soybeans are targeted primarily for food use and some are exported (non-biotech soybeans or soybean protein) at a premium to European and Asian markets. The commercialization of biotech grain crops in China for direct consumption seems uncertain in the near future. The China Soybean Association (CSIA) continues to call for the government to build a non-biotech soybean conservation region in Northeastern China.
Import policy on biotech approval system adds uncertainty to soybean trade
For imported biotech products, The Ministry of Agriculture (MOA) maintains an approval system for biotech varieties and renews the list on a periodic basis. The approval system, however, lags behind the international commercialization pace of new events, which adds uncertainty for soybean trade. The rejection of several U.S. corn and DDGS shipments to China in late 2013 due to China’s detection of unapproved GMO events in corn and DDGS shipments resulted in serious trade interruption. USDA maintains close contact with China's MOA on expediting the approval process as market access is key for trade partners and critical for China's price stability and food security.
Responsible soy program
In addition to biotech free characteristics, the China Soybean Association (CSIA) is also suggesting the government consider adding production characteristics. In May 2013, The Association supported a seminar held by The Round Table on Responsible Soy Association (RTRS), a multi-stakeholder initiative which aims to facilitate a global dialogue on soy production that is economically viable, socially equitable and environmentally sound. It is difficult to know how China will react to a program which places additional certification requirements on its producers.
USDA and AQSIQ continue cooperation
Based on a Memorandum of Understanding Regarding China-U.S. Cooperation Program for the Inspection and Quarantine of U.S. Soybeans Exported to China (MOU) signed by USDA and China’s General Administration for Quality Supervision, Inspection and Quarantine (AQSIQ) in late 2012, USDA and AQSIQ conducted the first joint soybean vessel inspection program in March 2013. The program greatly enhanced the understanding of the inspection system/quarantine standards/procedures /methodology of both sides. A second joint program is envisioned for fall 2014. Industry contacts reported that AQSIQ intensified inspection for unapproved GMO events in soybean shipments in 2014. In general, market access for US soybean exports to China has been stable in terms of inspection and quarantine issues since the signing of the MOU.
The impact of China-ASEAN free trade zone on oils trade remains limited
The China-ASEAN Free Trade Agreement (CAFTA) was enacted on January 1, 2010. Under the Agreement, import duties on more than 90 percent of goods imported to China from ASEAN countries were eliminated. According to the 2014 Customs Import and Export Tariffs of China, the duties for palm oil, palm kernel oil, and copra oil remain unchanged at nine percent. In general, Post expects that the implementation of CAFTA will have limited impact on the oilseed/vegetable oil trade between China and ASEAN.
Automatic Registration Form
China’s Ministry of Commerce’s (MOFCOM) manages the automatic registration form (ARF) system for bulk agricultural commodity imports which facilitates import monitoring by the government. It is applicable to soybeans, rapeseed, soybean meal and vegetable oils and seems to have had minimal trade impact since its inception.
Despite a relatively low farm-gate price, the marketing of MY13/14 crop went smoothly in the Northeast provinces. Many farmers increased sales to the government due to its above market purchase price. As reported by CNGOIC, as of mid-January, government purchases for tentative reserve reached 1.3 million tons, and are expected to reach 2 million tons in February, compared to 800,000 tons purchased by the government in the previous year.
Traders of domestic soybeans for food use are usually small to medium size operations and face many challenges in consolidating soybeans from households and villages. As highway development improves, shipping soybeans by truck is increasingly frequent and facilitates further redistribution.
MY14/15 rapeseed production is forecast at 14.1 million tons based on a planted area of 7.51 MHa and average yield. 2013 winter rapeseed planted area increased moderately by 63,000 Ha over the previous year, according to an MOA survey, and is rated as good quality. Favorable weather conditions during the growing season facilitated development of the winter crop. The 2014 spring rapeseed area in the northwest provinces is expected to be stable in response to positive profits signals for the MY13/14 crop.
To maintain positive progress in rapeseed production, provincial governments in major rapeseed regions, such as Hubei, Hunan, Jiangsu and Anhui, are looking to implement more mechanized planting to reduce rapeseed’s labor-intensive costs and improve profits. An industry source estimated that MY14/15 planted area in Hubei could rise by 20,000 Ha over the previous year due to this program. The central government’s minimum price procurement program also contributes to farmer’s profit margin and insures stable production.
Note: Although the official production estimate shows a stable to growing trend, many Chinese industry sources observe that the official data appears high. However, no industry source has the ability (to cover millions of households in many provinces) to provide more reliable data with science based statistical methodology.
Rapeseed imports will continue strong in response to rising demand from China’s underutilized crush industry. MY14/15 imports are forecast at 3.4 million tons, up from an estimated 3.3 million tons in MY13/14.
China’s rapeseed import policy, which restricts entry to non-rapeseed production regions due to phytosanitary concerns, continues unchanged. However, rapeseed crush plants have now been established in non-rapeseed areas, so the policy impact on imports from the two major suppliers, Canada and Australia, seems limited. Additionally, AQSIQ has reached agreements with Australian and Canada which should increase their market access.
CNGOIC estimates China’s current domestic rapeseed crushing capacity at least 40 million tons (some plants crush both rapeseed and soybeans), with a utilization rate of less than 40 percent. Guangdong, Guangxi and Fujian provinces have new crush plants which added 6 million tons of crushing capacity that will primarily utilize imported rapeseeds.
Government policies encourage rapeseed production through a minimum purchase price and direct per hectare subsidy. In MY13/14, the government raised the rapeseed purchase floor price to RMB5,100 ($822/ton) from RMB5,000/ton in the previous year. The current rapeseed seed subsidy of RBM150 ($24)/Ha will continue in 2014. These incentive policies are intended to encourage farmers to increase utilization of idle winter acreage.
Strong domestic demand and favorable prices makes peanuts a favorite crop among farmers. MY14/15 peanut production is forecast at 17 million tons based on a stable planted area of 4.71 MHa and consistent yields of 3.6 tons/Ha. Total production is estimated at 17 million tons in MY13/14. Steady increases in demand for peanut products both as food (snacks and milk) and for cooking (oil) support vigorous peanut production but additional gains are constrained by limited land resources.
The national average profit from peanuts stood at RMB10,128/Ha ($1,608/Ha) in MY12/13 with RMB13,143 ($1,950) /Ha and RMB13,052 ($2,310) /Ha in Shandong and Henan provinces, respectively. In MY13/14, peanut profit was reportedly lower than the previous year, but nevertheless consistently exceeds that of other cash crops in the large peanut-producing provinces of Henan, Shandong, Liaoning and Hebei provinces. This aspect is expected to maintain stable peanut planting area in MY14/15. Some provinces, such as Liaoning, support peanut production and processing in resource-depleted regions in their provinces.
Imports of peanuts (primarily food related) are low due to sufficient domestic supply. In addition, China imposes a 15 percent import duty and 13 percent value added tax (VAT) on peanut imports that reduce the competiveness of peanut imports in China’s marketplace.
China is only expected to export around 600,000 tons of peanuts in MY 14/15. Strong incentives, like robust demand and high prices domestically, dampen the export lure. Furthermore, strict import conditions in some major export markets reduce export interest.
Beginning in MY 10/11, the government implemented a seed purchase subsidy for peanuts in an effort to stimulate production and improve the domestic self-sufficiency rate for vegetable oil.
Cottonseed production in MY14/15 is forecast to fall to 11.7 million tons from an estimated 12.78 million tons in the previous year. Cotton planting area is expected to decline in MY14/15 in response to lower profits and modifications in government policy which could further affect cotton’s profitability. Despite the influx of funding from governmental price support mechanisms in MY13/14, cotton farmer’s income declined from the previous year. Particularly hard hit were farmers in the Yellow River and parts of the Yangtze River regions following poor weather which lowered yields. Similarly, in another key cotton producing region, the Xinjiang Provincial Development and Reform Commission reported their regional average profit from cotton declined by 21 percent from the previous year to RMB7,954 ($1,283)/Ha.
To further aggravate Xinjiang cotton’s profitability, the central government announced a trial program in MY14/15 to provide a direct subsidy to cotton farmers in Xinjiang based on a target price. Uncertainty about the “target price” (which is expected to be lower than the current minimum purchase price) could compound profit concerns and negatively impact planting intentions. Based on various sources, Post forecasts a five percent reduction in MY14/15 cotton planting area which would reduce cottonseed production to 11.7 million tons.
Novel uses for cottonseed, such as in mushroom farming, supports expectations for a solid upward rise in cottonseed imports which exceeded 300,000 tons in MY10/11 and 398,000 tons in MY11/12. Despite a spike in domestic production in MY12/13 that reduced cottonseed imports to 205,000 tons, MY14/15 import levels are forecast to recover to 350,000 tons in response to expected lower domestic supply.
US cottonseed imports must complete a Risk Evaluation procedure before gaining market access to China. Currently, USDA is engaged in this process with China’s import authority.
The camellia production plan in southern provinces continues to move forward. China’s State Forestry Administration (SFA) Mid-term Development Plan on Camellia (2008-2020) targets increasing camellia planted area to boost oil production of 2.5 million tons by 2020. Industry data showed the 2013 camellia oil production was estimated at 300,000 tons. Camellia is grown on hilly land in southern provinces including Hunan, Jiangxi and Guangxi.
According to CNGOIC, a Chinese company invested in Indonesia palm oil planting (130,000 Ha) with expected production capacity of 1 million tons by 2016.
Oilseed Meal Situation and Outlook
MY14/15 protein meal (including fish meal) production is forecast at 75.98 million tons, up 2.8 percent over the 73.94 million tons in the previous year, a rise attributable to increased crushing of imported soybeans and rapeseed. MY14/15 total protein meal supply is forecast to reach 77.25 million tons if the forecast 1.27 million tons of meal imports (rapeseed meal and fish meal) are included.
Total protein meal consumption in MY14/15 is forecast at 76.34 million tons, up 2.6 million tons or 3.6 percent over MY13/14 due to continuing industrialized feed demand from the animal production and aquaculture sectors. Soybean meal (SBM) continues to dominate the protein meal sector, accounting for 73 percent of total meal consumption followed by rapeseed meal (14 percent) and cottonseed meal (5 percent).
China Feed Industry Association estimated total industrialized feed production in 2013 at 191 million tons, down 1.8 percent over the previous year, mainly due to a decline in poultry feed following an outbreak of poultry diseases in first half of 2013. China’s 12th Five Year (2011-2015) Plan for Feed Industry Development forecasts that total industrialized feed production will average an annual increase of 7.6 million tons to reach 200 million tons by 2015. The current trend indicates this target will be reached earlier.
Industrialized feed is being demanded by larger-scale, modernized animal production operations which are increasingly numerous in China. However, a number of animal disease and food-safety related accidents in 2013 reduced consumers’ confidence in animal products, particularly so for poultry meat and eggs. Feed demand recovered in the final months of 2013, however, was subsequently impacted by additional poultry H7N9 cases in the first quarter of 2014.
Self-mix feed use by traditional small-scale operations is increasingly phasing out as the scale of operations expands and the need for large amounts of premixed feed abounds. Total SBM inclusion is expected to increase along with the growth of industrialized feed production.
The provincial swine industry association data show that the swine production by scaled farms (with 500 pigs or above slaughtered yearly) accounted for 87 percent, and 80 percent, respectively, in Jiangxi and Zhejiang provinces in 2012.
China’s National Statistics Bureau preliminary estimates of total meat (pork, beef, mutton and poultry), eggs, and milk (cow) production for 2013 are 83.73 million tons, 28.76 million tons and 35.51 million tons, up 1.8 percent, 0.5 percent and down 5.7 percent, respectively, over 2012. Additionally, MOA reported that aquaculture continues to grow with total cultured aquatic products estimated at 45.47 million tons in 2013, up six percent over the previous year.
China’s feed consumption could largely exceed the MOA official feed production if all major animal product production is included.
The rise in protein meal demand is attributable to an increased use of industrialized feed for these growing production sectors. Out of the estimated 191 million tons of industrialized feed production in 2013, swine feed increased by 3.2 percent to 80 million tons, while layer feed and broiler feed were both down by 5.5 percent and 8.4 percent, respectively, over the previous year. While poultry feed production continues to be impacted by disease incidents, swine and aquatic feed is expected to compensate as more pork and aquatic products will be needed to meet consumer’s protein food demand in 2014. Thus, MY14/15 protein meal consumption is forecast at 74.88 million tons, up 3.7 percent, for a net increase of 2.67 million tons over the previous year, with a net increase of soybean meal consumption forecast at 2.8 million tons. Cottonseed meal consumption is expected to decline.
China’s per capita expenditures for animal proteins (including all meats, poultry, eggs, and aquatic products) in 2012 averaged $272, up from $242 in the previous year. Spending increased in all provinces but varies widely, with the highest spending in Guangdong ($460) and the lowest in Shanxi province ($112). Large cities and a few coastal provinces are well above average and skew the national median expenditure; most regions lie well below the national average.
In addition, annual per capita consumption of protein foods in urban versus rural communities continues to differ in 2012, on average, by 26.74 Kg. Potential increases in protein consumption amongst 642.22 million rural people (out of the 1,354.04 million; Source: 2013 China Statistical Yearbook) opens opportunities for higher protein meal demands. The consumption of milk and related products remains low among the rural population (5.29 Kg) in 2012 compared to the urban population (13.95 Kg). As rural incomes rise, the undeveloped potential of rural residents to consume more animal protein products will create additional demand for protein meal in feed products.
Overall increases in animal protein product demand are also fueled by population growth and urbanization. According to NSB, China’s average annual net population growth was 6.5 million from 2008 to 2012. Additionally, the rapid urbanization continues with annual growth in urban populations averaging 21.94 million from 2008 to 2012, with 20.85 million new urban residents added in 2012.
SBM continues to dominate the meal complex with MY14/15 production forecast at 56.6 million tons, up 4.7 percent over the estimated 54.1 million tons in MY13/14. As other protein meal production remains stable and imports of protein meals are constrained by limited resources at high prices (for fish meal) and relatively lower value (for rapeseed meal), SBM remains the best choice for industry feed production and increasingly concentrated animal production. With the large soybean crush industry using growing imports of soybeans, domestic SBM production is expected to continue to be high with adequate supply to meet the market demand in MY14/15 and beyond.
SBM trade is expected to decline in MY14/15 with exports forecast at 800,000 tons and imports at 20,000 tons. SBM trade has been minimal in recent years because large domestic SBM production fulfills market demand. Japan and South Korea remain the leading export market, accounting for 69 percent of China’s 1.32 million tons SBM exports in MY12/13. Industry analysts expect sporadic imports and exports of SBM as traders take advantage of regional or local price differences and export non-biotech SBM.
The government suspended imports of SBM from India beginning in early 2012 reflecting the government’s preference for domestically crushed oilseed meals in lieu of other inexpensive priced meals. Some industry analysts believe China may increase SBM exports to Southeastern Asian countries in response to the likely decline of Indian SBM supply to the region as India’s domestic SBM consumption grows. SBM imports will remain insignificant due to the large domestic supplies produced by the soybean crush sector.
Post forecast MY14/15 rapeseed meal imports at 190,000 tons, slightly higher than the estimated 120,000 tons imported in MY13/14. Domestic rapeseed meal consumption continues to be driven primarily by the growing aquaculture sector. Following resolution of phytosanitary issues, China granted market access to rapeseed from Canada and Australia. Based on this additional supply, China’s rapeseed crush industry favors rapeseed imports instead of rapeseed meal.
China’s domestic fishmeal production remains low. Growing feed industry demand creates an ever widening supply gap which must be filled by imports.
Fishmeal imports fell to 976,000 tons in 2013 from the 1.27 million tons in the previous year, mainly due to fishmeal prices which surged to an average $1,712 per ton from the $1,357 per ton in 2012, due to supply issues. Peru remains China’s largest fishmeal supplier at 459,600 tons and accounted for 47 percent of China’s total imports in 2013. Imports from the United States slumped to 109,000 tons from 172,000 tons in the previous year, most likely due to higher prices (average at $1,917/ton of higher quality).
In late 2013, the Peruvian government announced a 12 percent increase in its fishing quota to 2.3 million tons. As such, the annual catch level is expected to recover to previous levels, thus easing the supply situation in 2014. U.S. fish meal exports to China are expected to be stable in 2014 as China’s imports are forecast to be slightly up to 1 million tons.
Oil Situation and Outlook
Due to increased crush volume using imported soybeans and rapeseed, total vegetable oil production for MY14/15 is forecast at 23.66 million tons, up 400,000 tons from the MY13/14 estimate. Soybean oil is expected to remain the primary vegetable oil produced in China, accounting for 54 percent of total oil production, followed by rapeseed oil (25.7 percent), peanut oil (12.8 percent), and cottonseed oil (5.6 percent) in MY14/15.
MY14/15 total oil supply is forecast at 37.11 million tons with total domestic food-use oil consumption forecast at 30.33 million tons, up 3.3 percent from MY13/14, with industrial use forecast at 2.39 million tons. MY14/15 total oil imports are forecast at 8.82 million tons, almost unchanged from the previous year, due to adequate domestic supply. In general, as the domestic crush sector needs to import whole oilseeds, imports of soybean oil and rapeseed oil are not expected to be a leading trend but to make up supply differences when import oil prices becomes competitive. Imports of rapeseed oil are forecast to fall to 1 million tons in MY14/15 in response to large rapeseed imports.
China’s high GDP growth and growing consumer affluence is forecast to increase vegetable oil demand by more than 1 million tons in MY 14/15 to meet food and industrial consumption. The forecast per capita consumption of vegetable oil of 21.8 Kg for food use in MY14/15 (based on total population of 1,354 million as of 2012) is still 13 percent less than Taiwan’s 2005 per capita consumption of 25.1 kg. Even though China’s oil consumption has grown rapidly in recent years, there is still significant growth potential before it reaches a level similar to comparable markets like Taiwan.
There is a steady upward trend of annual per capita edible oil consumption for rural residents with a slight decline for urban residents in 2012. Industry sources believe this could reflect increased meals away from home and health concerns regarding oil consumption levels by urbanites. China’s National Statistics Bureau (NSB) data shows rural per capita edible oil consumption was 1.31 kg lower than urban consumers in 2012. This indicates a potential for higher intake for 642.2 million rural people.
The per capita expenditure by urban residents for restaurant meals continued to show rapid growth in 2012, reaching an average of $209 (compared to $182 in the previous year). There was a steady growth of expenditure in all selected provinces/municipalities. Shanghai residents had the highest expenditure ($412) with the lowest in Heilongjiang ($150). Strong GDP growth in 2014 is expected to augment a growing middle class with higher disposable income to spend on meals away from home. With more than 120 million migrant workers populating urban areas, the demand outlook for oilseed imports to produce vegetable oil remains positive.
Vegetable oil consumption is also driven by the food processing industry. For instance, the instant noodle industry, which uses large amounts of palm oil, produced more than 9.35 million tons in the first 11 months of 2013, up 6.4 percent over the previous year, according to an industry estimate. Some experts estimate that the annual growth in vegetable oil consumption by the food processing sector averages five percent in recent years.
The wholesale price for major oils declined sharply from January to December 2013. Soybean oil and rapeseed oil both fell by 17 percent and 18 percent, respectively, within a 12 month period. The rapeseed oil price continued to be more than 20 percent higher than soybean oil, while palm oil remained about 20 percent lower than soybean oil. Declining prices for all vegetable oils indicate a supply growth which exceeds consumption growth. Lower prices for soybean oil and palm oil are likely to boost the blended salad oil share in the market in coming months driving soybean oil consumption.
MY14/15 soybean oil production is forecast at 12.78 million tons, up 4.7 percent from last year’s estimate, due to increased crush of imported soybeans. Soybean oil remains the dominant vegetable oil, accounting for 42 percent for domestic vegetable oil consumption in MY14/15.
Soybean oil imports, which recovered to 1.4 million tons in MY12/13 after the ban was lifted on Argentine oil, are expected to level off to 1 million tons in MY14/15 as domestic production grows. Imports from U.S. are expected to fall as well to the benefit of Argentina.
MY14/15 palm oil imports are forecast to increase to 6.25 million tons, a moderate rise from MY12/13 level. A price fall in late 2013, though, of soybean oil and rapeseed oil is expected to put pressure on palm oil consumption and import growth.
Palm oils inexpensive price, relative to soybean and rapeseed oil, is a major factor in its demand. Blending palm oil with other vegetable oils for cooking oil is popular. The food processing industry in China uses large amounts of palm oil in processed foods, especially instant noodles. Industry sources report that instant noodle production reached more than 9.35 million tons in the first 11 months of 2013, up 6.4 percent over the same period in the previous year. Due to the increasing numbers of busy consumers seeking convenient, inexpensive ready to eat foods, demand for instant noodles is expected to continue.
China does not produce palm oil so demand must be met by imports. The growth of palm oil production in both Indonesia and Malaysia in 2013 surpassed palm oil demand and resulted in a high inventory and a price decline. However, the low price may contribute to strong consumption in major importing countries such as China in MY13/14.
Vegetable oil import policy changes
On January 1, 2013, AQSIQ implemented additional import inspection requirements for edible and crude vegetable oils. AQSIQ’s clarification on specific items to be certified and the laboratories qualified for providing such test reports and certificates remains vague. Post has not received any trade interruption complaints related to this issue.