Fundamentally Speaking

Slowing Chinese Feed Demand

Joel Karlin
By  Joel Karlin , DTN Contributing Analyst

China's GDP in the first quarter came in at 7.0% and even though such a rate of economic expansion is the envy of almost any other country worldwide, it may be insufficient to accommodate the millions of new workers entering their labor force each year.

There used to be a saying in the financial world that when the U.S. sneezed, the rest of the world caught a cold. Now that applies to China.

Earlier this week the Chinese stock market posted its largest one day decline since February 2007 on mounting concern that business activity in the world's second largest economy is slowing fast.

For years the Chinese economy was built on cheap exports, easy money, fixed business investment and a high rate of savings.

Now the Chinese currency has appreciated in the world forex markets, other Asian and African economies are now manufacturing the various goods that Chinese workers used to make while the building and housing boom has come unglued amid an overcapacity and much tighter credit conditions.

In addition to pressuring the global equity markets, world commodity markets have also swooned on signs that this will depress demand for a number of key items including grain and oilseeds.

Recently there have been a number of articles saying that China has such huge reserves of corn that are of little interest in commercial circles that China will impose bans on the imports of barley, sorghum and distillers grain to force the issue.

We are also monitoring a drop in the Chinese hog population that has weighed on both corn and protein meal demand as depicted in the graphic where the percent increase forecast for domestic feed consumption of each is the lowest in years.

The USDA in its July WASDE report said Chinese domestic feed consumption of corn will rise by 2.0 million metric tons to 158.0 million which equates to a 1.28% rise from 2014/15 levels, the lowest year to year increase since the 2004/05 season.

For soybean meal, the 59.6 million metric ton feed usage projection for the 2015/16 season represents a 4.97% annual increase, the third lowest since the 2003/04 season.

Joel Karlin, Western Milling

(KA)

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Freeport IL
7/30/2015 | 12:50 PM CDT
The bullish optimism of continued dollar strength seems to be waning. This resist change in opinion may change the view of a potential drop in the Brazilian Real of 20%. A currency change of this level might bring short term opportunities for US farmers with very negative longer term results. This is one of your bearish stories. China is a very larger ship running at one half full. It will take a while for her to change direction. Argentina, Brazil, Russia and most of Europe are dead in the water. Their direction is assumed but unknown. The shell game seems to have us looking in the wrong place. Our guess is; "The pea is not under China." Freeport, IL