China's Duck Lovers Help Brazil Farmers as Virus Kills Hogs

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(Bloomberg) -- Demand for poultry is booming in southern China, home to a local specialty of salt-marinated chicken.

That’s because the Cantonese are increasingly looking for alternatives to pork as African swine fever devastates hog herds in the world’s top consuming nation. The heightened demand for fowl is welcome news for feed makers.

Poultry feed consumption in China is expected to grow 20% this year as people eat more chicken and duck, especially in southern provinces, according to Hou Xueling, an analyst with Everbright Futures Co. Along with an increase in fish farming, that should keep demand for soybean meal, one of the most important ingredients in animal feed, at about 65 million to 67 million tons this year, compared with 70 million tons a year earlier, she said.

“The Cantonese have chicken teeth so there’s a consensus that a lot of people will replace pork with poultry meat,” Hou said in a phone interview following a week-long trip to survey the industry in the southern region of Guangdong last month. The province, famous for its white sliced chicken and roasted duck, is one of the country’s biggest feed makers.

China's Duck Lovers Help Brazil Farmers as Virus Kills Hogs

Increasing demand for poultry feed may bring some relief to farmers in Brazil, the world’s biggest soybean exporter, who are seeking to boost their market share in China after the Asian country slapped 25% tariffs on U.S. supplies.

Companies in the food supply chain, from growers to traders and feed makers, are closely monitoring how the highly contagious virus, harmless to humans but deadly for hogs, is changing diets in the world’s most populous nation.

The U.S. Department of Agriculture estimated in April that hog production in China would drop by 134 million head this year, equivalent to the entire annual output of American pigs, and the worst slump since it started counting the nation’s hogs in the mid-1970s. Beef imports already jumped to a record in April, while purchases of pork from overseas surged 24% from a year earlier.

China's Duck Lovers Help Brazil Farmers as Virus Kills Hogs

Feed makers are boosting sales to poultry breeders, and keeping soybean meal inventories at five to seven days usage, lower than usual because of the uncertainty, Hou said, citing discussions with seven mills during her trip. Three large- and medium-sized processors told Bloomberg the industry’s focusing on producing more soybean meal-based feed for fish and poultry to meet demand.

The Chinese markets for oilseed meal are tightening. Futures for soybean meal in Dalian surged 14% in May, the best month in three years, while rapeseed meal was up 15% in Zhengzhou, lifting prices to their highest in months, as demand outstrips supply limited by import tariffs and moves to curb Canadian shipments. Hou’s estimate of soybean meal consumption this year is higher than the one that Citigroup Inc. gave in April of 62 million to 63 million tons.

The deadly virus started to spread more quickly in Guangdong after the Lunar New Year holiday in early February, which is a peak travelling period. Hog inventories in Guangdong and the neighboring province of Guangxi have dropped by more than 40% and are still shrinking, Hou said.

China's Duck Lovers Help Brazil Farmers as Virus Kills Hogs

China confirmed a new outbreak of African swine fever in the southwestern province of Yunnan late last month. The country’s attempts to control the disease have been insufficient, with the virus now endemic in two regions, according to a United Nations group.

Some hog farms hit by the virus plan to breed ducks instead, Hou said. Ducks can be raised in the big water pools that supply pig farms, which cuts transition costs for owners. More rain this year has exacerbated the spread of the hog disease and affected the burial of culled animals, she said.

©2019 Bloomberg L.P.

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