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Three major trends in the future development of the feed industry - August 2008
Release time:
2011-01-25 00:00
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The development of the feed industry has provided almost all of the indispensable animal protein sources for human survival, making its social contribution and industry value quite prominent. However, for a long time, the feed industry has been under the dual pressure of rising upstream raw material prices and difficulty in raising downstream prices, with a gross profit margin of only around 10% during good times and a sales profit margin of only 3%. The development of the feed industry has reached a point where transformation is necessary.
The feed industry has long suffered from double oppression. First, the interests of livestock farmers have never been truly valued, and their low profits mean they can hardly afford price increases in feed. Second, grain prices have risen somewhat in the past two years, especially the price of soybean meal, a major source of plant protein in China, which is almost entirely dependent on the international market. The continuous rise in the prices of corn and soybean meal has put enormous cost pressure on the feed industry.
Although the rise in pork prices has greatly improved the situation of livestock farmers, feed price increases have also become inevitable. By the end of May this year, the year-on-year increase in livestock and poultry feed prices has exceeded 20%. It is the rise in pork prices that has restored the value of the entire industrial chain to a normal level. From the perspective of the inherent logical relationship between feed and downstream farming industries, without changing the predicament of the farming sector, the feed industry will never see its day. Some forward-looking feed companies have begun to bravely expand into the downstream farming sector, which is the budding of new productivity. Among them, the most representative companies are Shandong Liuhe and Guangdong Wen's, and their rapid development in the past few years has given the entire industry hope. In addition to downstream expansion, some companies have successfully expanded upstream, mainly in soybean processing, which has provided them with a stable source of low-cost raw materials against the backdrop of soaring raw material prices.
The demonstration effect of Liuhe and Wen's has encouraged many companies in the industry to make integrated attempts. New Hope Group, in 2005, quickly secured the top spot in China's feed industry by acquiring a 45% stake in Shandong Liuhe. In 2008, its feed sales are expected to exceed 10 million tons. We predict that improved profit margins, increased concentration, and in-depth integration will be the three major development trends of the feed industry for a long time to come.
Despite the significant increase in feed raw material prices, based on the industry's inherent value, the feed industry, through vertical integration of the industrial chain, will ultimately be able to successfully pass on costs to the end-users, and the industry's future profit margins are expected to improve.
During the replacement of old and new productivity in the feed industry, there will inevitably be huge investment opportunities in the capital market. From January to May this year, the growth rate of feed production reached a new high of 27.2%. Despite the significant increase in raw material prices, feed prices rose by more than 24% year-on-year, and the industry's gross profit margin increased by 0.9 percentage points year-on-year. The pattern of price and volume increases led to an explosive growth in total profits, with a growth rate of 110%, and the sales profit margin also increased by 0.9 percentage points. The profit per ton of feed reached 106 yuan, a historical high.
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