Feed company executives say the sector has suffered a dual blow from disease and a drop in demand that could keep stocks in short supply into the third quarter.
China has not disclosed any significant outbreaks of bird flu or the extent of the impact on the industry.
According to an executive from a leading feed and poultry producer there have been very few restocks after the Chinese Lunar New Year. Poultry stocks could have fallen by 30 to 40% compared to last year, he said.
Traders have said weak poultry breeding is to blame for a sharp fall in prices of soy meal, which has prompted some cancellations of US soybean cargoes from China.
Job losses hit consumption
Chinese officials have said 20 million migrant labourers have lost their jobs after factories making export goods such as toys and textiles closed because of the global economic recession. That has slashed demand from factory canteens.
"With many migrant labourers returning home, consumption of meat and eggs has fallen and pig prices are also down a lot because of the high stocks of pigs and low consumption," said Sun Zhiqiang, an official with China Feed Industry Association.
He said many chicken slaughter houses were closed, including half of those in the largest poultry producing province of Shandong, mainly because of outbreaks of bird flu.
Bird flu aftermath
China has not officially reported any outbreaks of bird flu among chickens, and Chinese media have not reported the number of birds culled because of outbreaks.
China only reported eight human cases of bird flu in January. Five people died from the H5N1 strain of the disease.
But feed officials told Reuters that outbreaks have also killed much of the poultry breeding stock, driving up prices for young chicks.
Although poultry demand is under pressure, costs have been kept up by the Chinese government’s purchases of grains such as corn, a major ingredient of feed for chicken and pigs.
Beijing’s massive purchases of corn, totalling about 80% of the harvest in northeast provinces have reduced supplies to the market in the north and south, where prices picked up over past weeks.
The price rise has prompted Beijing to drop the plan to purchase more corn for state reserves in northern China, a Shandong feed mill executive said.
The increase has prompted some feed mills in the south to consider switching to relatively cheaper imports. But the price advantage narrows because of quota limitations and higher costs associated with strict quarantine inspections for containers.
Many small feed mills have been closed since late last year. Big ones have reduced production by 10-30%, feed industry insiders said.