(Posted Thu. Apr 25th, 2013)

Apr. 25: The impact of China's bird flu outbreak on poultry production, and thus feed demand, remains uncertain but may be less than initially feared. In mid-April, China's bird flu incidents resulted in the closing of live bird markets around the Shanghai region and in South China. As cases spread to other regions such as Beijing and Henan, the effects of these closings and the reduction of poultry inventories will reduce feed consumption in the poultry industry. However, if consumers switch to pork instead of poultry meat, this will offset the losses in the poultry sector and reduce the net effect on feed demand.

"Since hogs are less efficient converters of feed to meat and use a higher proportion of energy feeds like corn, any substitution of pork for poultry that occurs will dampen the negative effect of reduced poultry production on feed demand, particularly corn," said Bryan Lohmar, U.S. Grains Council director in China. "Conversely, fish are more efficient converters and use less energy feed, so if consumers switch to fish this will help soybean increase demand a little, but not corn."

While there are not yet confirmed reports, there are suggestions that people may be substituting pork for poultry. Both at markets and in restaurants, consumers may choose to substitute pork for poultry to maintain protein intake while avoiding perceived risk. Additionally, research has shown that pork is the primary substitute for chicken.

Another line of speculation does imply that a portion of consumers are avoiding meat completely in favor of fish, which would have negative implications for feed demand. However, as fish prices are currently rising, the trend toward pork substitution may gain further popularity.

At a recent feed industry conference in Chengdu, some poultry producers expressed the view that there is too much hype over the problem, and they are already getting ready to restock inventories.

If the virus continues for another month or more and spreads geographically in the country, however, the effect would be more significant. China produces around 17 million metric tons of poultry meat. Thus even a five percent reduction in poultry demand is 850,000 metric tons of meat. The birds at live markets tend to be "high quality" traditional varieties with far less efficient feed conversion than modern chickens in the west. A five percent reduction in meat production would thus result in about 88.5 million bushels reduction in corn feed demand. This would mean only about a 1.1 percent decrease from the USDA's estimated 8.1 billion bushels of total corn demand in China in 2012/13.

The substitution of pork for poultry that occurs is thus likely to limit any reductions in corn demand, and if pork is substituted for a bit more than half of poultry, then corn feed demand will actually rise because of the higher corn input required to produce pork. The effect of pork substitution for poultry will be somewhat lagged; increased pork consumption today will raise pork prices and cause inventories to replenish faster than otherwise, resulting in more feed demand over the summer.

This report was originally issued by the U.S. Grains Council, of which the National Corn Growers Association is a founding member.