Rabobank: China Food & Agribusiness Quarterly – Q4 2022
In Q2 2022, China’s GDP growth recorded only 0.4% YOY, according to the National Statistics Bureau. Rabobank is forecasting China GDP will only grow at 2.8 % for year 2022.
In August, consumer confidence indicators (CCI) are hitting historic lows, at 91.8. CCI is less likely to improve in the short term, given the current geopolitical turmoil, the ongoing zero-Covid policy in China, and growing fears of a global recession. In addition, youth unemployment remains at a historical high level (18.7% in Aug 2022), imposing challenges of economic and social instability.
Together with currency depreciation, softening equity markets, and a higher youth unemployment rate, consumer sentiment unsurprisingly shows limited optimism for F&A demand.
Unlike the US or Europe, China’s inflation for most food products is low or moderate, except for pork and fresh fruits and vegetables. Low price increases for most food products have indicated that food processors may face challenges in transfering raw material increases to end consumers.
The main highlights include:
- Farm Inputs: Domestic fertilizer prices are stabilizing in recent weeks, as the autumn fertilization season approaches in China. Meanwhile, feedstock costs will also limit downside potential. Operating rates of nitrogen and phosphate producers are expected to stay low in Q4, due to the impacts of governmental policies. The Chinese government will restrict fertilizer export until 30 April 2023.
- Grains & Oilseeds: China’s domestic corn price is facing seasonal harvest pressure. The 2022/23 output is now estimated to have a mild drop of 5m to 6m metric tons. Driven by high basis points and positive crushing margins, China’s monthly soybean import volume is set to rebound in the coming months. High imports will ease tight supply and stabilize the soymeal price.
- Animal Protein: Pork prices remain strong despite the government measures to curb the rising CPI. Momentum will likely continue into Q4 2022 and Q1 2023. Poultry prices have increased mildly compared with pork. Price upside potential is relatively limited as demand remains weak under Covid policies. Imports have dropped while exports increased.
- Dairy: Despite high milk production growth, falling import is slowing down supply. However, the recovery in dairy demand has again been interrupted by renewed Covid-related lockdowns in Q3 and into October. This continues to depress milk prices and slows down the pace of destocking. Following reports of squeezed profitability by listed farming operators in 1H 2022, the pressure is expected to persist on dairy farming profit margins. Channel checks suggest that investment appetite is decreasing, but meaningful slowdown in production is probably unlikely until 1H 2023 and onward.
- Consumer Foods: In August 2022, the foodservice sector grew by 8.4%, mainly as a result of a lower comparable base in August 2021 and moderate food price increases. Food and grocery retail sales were up by 7.8% YOY, with food-only retail sales slightly outperforming beverage retail sales in August.
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