On July 30th, Caixin reported that many livestock feed industry workers felt that "demand is very sluggish, and it is clearly more bleak than the same period last year."

Caixin reporters have learned that in the first half of the year, while the price of feed raw materials has continued to fall, competition in the feed market has become much fiercer due to weak downstream demand for animal farming, which has caused differences in profitability between major and small- to medium-sized feed companies; larger feed companies, such as Guangdong Haid Group (002311.SZ), are expected to strengthen their market share and profitability. For example, in the case of Guangdong Haid Group, the company's feed sales increased against the trend, with year-on-year growth of 8.5% in the first half of the year, and its gross margin increased by 0.87 percentage points year-on-year.

Taking Guangdong Haid Group as an example, the company's feed sales volume increased by 8.5% year-on-year during the first half of the year, and its gross margin increased by 0.87 percentage points year-on-year.

In contrast, small to medium-sized feed companies have been struggling to survive, hoping for an improvement in industry demand. Some industry insiders have told Caixin, "Now that the price of pork has gone up and enthusiasm for animal farming has slowly increased, the situation should improve somewhat in the second half of the year, otherwise the pressure will be too great."

Other industry insiders who were interviewed believe that "the recovery phase of animal farming has begun since the second quarter, but the recovery of demand is still relatively slow. With the improvement and stability of animal farming profits, it is expected that the number of animals raised will increase, and combined with low raw material prices in the second half of the year, feed consumption may gradually return to normal, and the sluggish demand in the industry may improve somewhat."

Feed demand is weak, and practitioners are calling it "too sluggish."

Recently, some feed industry practitioners told Caixin reporters, "The demand for feed in the first half of this year was very sluggish. Especially for pig feed, the sales situation was clearly bleaker than the same period last year."

Under the influence of two consecutive years of sluggish animal farming market, pig farming has continuously declined, resulting in a decline in downstream demand for feed. Some feed salespeople also complained to Caixin, "It's hard to sell; many animal farming businesses were losing money in the past two years, causing some breeders to drop out. As a result, there are fewer fixed customers, which has led to a decline in my income."

According to data from the China Feed Industry Association, during January and February of 2024, the country's industrial feed output was 44.37 million tons, a year-on-year decrease of 3.6%. In March, the country's industrial feed output fell by 3.2% year-on-year to 24.6 million tons. In April, the country's industrial feed output was 24.23 million tons, a year-on-year decrease of 7.9%. In May, the country's industrial feed output was 25.13 million tons, a year-on-year decrease of 7.5%. Feed production during the first five months of this year has declined year-on-year, which indirectly reflects the poor demand of downstream animal farming enterprises, and overall feed sales have also been bleak compared to last year.

In the context of sluggish demand, the pressure on small and medium-sized enterprises has increased exponentially. As one feed industry worker previously stated, "Demand was already very sluggish, but now with the competitive advantages of larger enterprises in terms of scope, price, formulation, and better procurement costs and channels, we are under even greater pressure to lower prices, and if we do not, our market share will continue to be eroded."

The competitive advantage of leading feed companies has become more prominent, and their market share has strengthened against the trend. For example, in the first half of this year, despite sluggish demand in the industry, Guangdong Haid Group's feed sales experienced a trend-bucking growth period, with sales volume totaling approximately 11.79 million tons (including internal farming use of 0.98 million tons), which increased by approximately 8.5% year-on-year, and external sales volume was 10.81 million tons, up 8% year-on-year.

Relevant personnel from another leading feed company said, "Our sales have been steadily growing overall in the first half of this year, and our market share has further increased in some provinces."

As raw material prices hit a "trough," corporate profitability has experienced differentiation.

While being hit by weak demand, relevant feed raw material prices have continued to decline.

According to data from the China Feed Industry Association, during the first half of this year, major feed raw materials such as corn and soybean meal experienced major price reductions. The average purchase price of corn and soybean meal for feed companies were 2524 yuan/ton and 3680 yuan/ton, respectively, representing year-on-year declines of 13.2% and 17.0%. Due to the comparison effect, cottonseed meal and rapeseed meal were priced at 3746 yuan/ton and 2841 yuan/ton, respectively, representing year-on-year declines of 10.1% and 14.6%.

(Pricing of major feed raw materials and feed additives purchased in the first half of 2024, image source: China Feed Industry Association)

Behind the raw material price drop, due to the cost-plus pricing method adopted for fodder, fodder prices also fell in response. According to data from the Bureau of Animal Husbandry and Veterinary Medicine of the Ministry of Agriculture and Rural Affairs and the sample enterprises of the China Feed Industry Association, the ex-factory prices of major matching fodder, concentrated fodder, and additive premixed feed products in the first half of 2024 showed a year-on-year downward trend. Among them, the year-on-year decline in matching fodder for fattening pigs, laying hens, large meat chickens, and adult carp was 7.8%, 8.4%, 7.8%, and 0.8%, respectively. For concentrated fodder, the year-on-year decline for fattening pigs, laying hens, and large meat chickens was 7.3%, 8.3%, and 7.5%, respectively. The year-on-year decline of 5% laying hens and 5% large chickens in additive premixed feed was 0.5% and 3.3%, respectively.

Some practitioners said, "Since the second half of last year, the cost of raw materials has been in a downward trend, and some raw material prices have dropped especially. The first round of feed price reduction this year was probably in January, and then the raw material price continued to decline. In general, there have been four rounds of price reductions in the first half of the year."

According to Zhuochuang Information monitoring of the prices and proportions of main feed raw materials (soybean meal, corn, bran, and amino acids) and calculated pig feed prices, since September 2023, the prices of pig feed raw materials have shown a downward trend, from 3,401.37 yuan/ton in September 2023 to 2,639.63 yuan/ton in April 2024. The feed price for the second quarter was 2,676.59 yuan/ton, a year-on-year decrease of 13.18%; the feed price for the first half of the year was 2,681.09 yuan/ton, a year-on-year decrease of 15.05%.

Under the background of sluggish demand, price reduction has become an important means of competition for enterprises. A salesperson of the above-mentioned feed company said, "Compared with the advantages of large enterprise's procurement costs, channels, and formulas, the same degree of price reduction has resulted in a significant decline in our gross profit margin. In fact, our profits for the first half of the year are even decreasing."

In contrast, the profitability of leading enterprises has increased against the trend. According to the half-year report of Guangdong Haid Group, the company achieved revenue of 52.296 billion yuan in the first half of the year, a year-on-year decrease of 0.84%; and a net profit attributable to the parent company of 2.125 billion yuan, a year-on-year increase of 93.15%, of which the gross margin of feed increased by 0.87 percentage points.

An industry insider said, "In recent years, the scale dividend of the feed market has been shrinking, and it can even be said to be gradually disappearing. The dividends of quality and channels are gradually emerging. In this unequal strength differentiation competition, the advantages of leading feed companies in terms of market share and ton-profit are gradually increasing."

A relevant person from a leading enterprise said, "On the basis of the reduction in raw material prices in the first half of the year, the company has continued to optimize formulas and costs, and its profitability has improved slightly."

Will demand pick up in the second half of the year?

Looking forward to the second half of the year, can small and medium-sized feed companies escape the harsh survival line? Can the profitability of leading feed companies be further enhanced?

An insider of a listed feed company told reporters, "From the perspective of pig feed, feed demand is generally calculated based on the inventory of pigs. With the improvement of breeding profitability, the inventory of pigs may gradually recover, which is good news for feed demand."

In fact, from the perspective of downstream breeding, breeding profitability is in the stage of recovery and upward trend. According to the monitoring of breeding costs by Zhuochuang Information, the profit of self-bred and self-raised pigs in China increased from 118.69 yuan/head on April 1 to 638.90 yuan/head on June 11, and the average profit of self-bred and self-raised pigs in the second quarter was 287.97 yuan/head, an increase of 339.48 yuan/head from the first quarter and 436.05 yuan/head from the same period last year. The average profit of self-bred and self-raised pigs in the first half of 2024 was 119.61 yuan/head, an increase of 239.42 yuan/head from the same period last year.

The rise in pig prices, the increase in profits, and the expansion of production capacity are the unchanged essence of the pig cycle.

Data shows that the inventory of sows capable of producing piglets at the end of the second quarter of 2024 increased by 1.1% compared to the previous quarter, once again reaching over 40 million. The inventory of live pigs reached 415.33 million, an increase of 1.7% compared to the previous quarter, and both showed some upward trend.

Downstream feed demand is gradually picking up. According to data from the China Feed Industry Association, the output of industrial feed in May and June 2024 increased month-on-month by 3.7% and 0.3%, respectively. A salesperson mentioned earlier said, "In the past month or so, sales have started to improve slightly, with some growth compared to the previous few months."

It is worth mentioning that the cost aspect may continue to maintain a low-level shock throughout the second half of the year for bulk raw materials.

Taking soybean meal as an example, it has now fallen to around 3,000 yuan/ton. Xing Haixia, a soybean meal analyst at Shanghai Steel Union, told Caijing that, "At present, the market still maintains a consensus on the loose situation of global soybeans in 2024/25, especially the expected rich production of soybeans in the United States in 2024/25, which has increased the expectation of inventory carryover and suppressed CBOT soybeans. At the same time, South American soybean production is still expected to increase year-on-year, keeping the cost of imported soybeans in China fluctuating in the second half of the year."

An industry insider believes, "The breeding end has been in the recovery phase since the second quarter, but the recovery of demand is still relatively slow. With the improvement and stability of breeding profitability, it is expected to promote an increase in breeding inventory. Coupled with the possibility that raw materials may still be at a low-level shock in the second half of the year, feed consumption may gradually return to normal, and the industry's downturn is expected to improve somewhat."