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Bird Flu Hits China's Poultry Consumption, Curbs Soybean Demand

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A dropoff in Chinese demand for soybeans used to feed poultry and livestock could last for months, as consumers lose their appetite for poultry in response to a deadly bird flu virus outbreak and amid lingering images of rotting pig carcasses floating in a river.

China, which buys 60 percent of the world's traded soybeans, could further reduce bean imports this year - already down some 13 percent year to date on food security concerns and high stocks - which will likely curb a rally in benchmark Chicago prices.

Authorities have culled tens of thousands of birds as it tries to contain the spread of the H7N9 virus that has killed 22 people and infected 108 since the first deaths were reported in March.

"We are not eating chickens anymore," said Shao Fei, a 35-year-old office worker in downtown Shanghai. "We have tried to switch to beef and fish, but those are expensive, so we are having a lot more vegetables at home these days."

In Shanghai, where the flu has been most pronounced, about 111,000 birds had been culled as of last week and authorities have shut down live poultry trading at 196 markets. The impact has been felt among restaurants on Shanghai's streets. One popular chain, The Grandma's, has pulled a popular green-tea chicken dish off the menu.

(Read More: Will China's Bird Flu Put Inflation Hawks at Bay?)

Poultry sales have dropped by 80 percent in eastern China and by about 30 percent in other parts of the country, analysts and industry officials say. Fewer birds to feed means less demand for soybeans and corn.

"We don't see any signs of recovery" for poultry consumption, said Wang Xiaoyue, an analyst at Beijing Orient Agri-business Consultant Co. "There is a possibility of 20 to 30 percent decline in consumption this year if the flu lasts for some time."

The price of one-day-old chicks, which poultry farmers buy from breeders to restock, have plunged more than 85 percent, according to the National Poultry Industry Association.

Breeders have scaled back and, in the northeast city of Shenyang, millions of baby chicks were burned as prices fell to 0.5 yuan each compared with 4.75 yuan per chick last year, local media reported.

Setback for Prices

"The bird flu could have a big impact as the poultry sector consumes almost half of total feed production," said Jean Yves Chow, a senior livestock industry analyst at Rabobank in Hong Kong.

"The slowdown could last for one or two quarters depending on how quickly the government is able to contain the disease."

(Read More: Could China's Bird Flu Be the Next SARS?)

China's soybean imports had risen for eight consecutive years, rising almost five-fold to 58.39 million tons in 2012 from 10.43 million tons in 2000, driven by rising wealth and demand for high-protein food such as pork, poultry and seafood. China now accounts for half of the world pork consumption and close to 15 percent of the global poultry production.

China's soybean imports in 2012/13 could still be in line with last year's level because of strong growth in pork consumption, the China National Grain & Oil Information Center said.

But this year, soybean imports have already dropped more than 13 percent to 11.49 million tons in January-March from a year ago as port congestion in Brazil delayed shipments while demand slowed partly in response to a tainted chicken scandal.

Lower soybean stocks should typically translate into increased purchases, but that has not materialized.

"There is no rush to buy," said a trading manager at Singapore-based international trader. "In a normal situation it would have resulted in aggressive buying."

(Read More: China's Earthquake: Counting the Economic Costs)

Soybeans are crushed to make soymeal, which is used with corn to make animal feed.

A decline in soybean imports by China, which buys close to a quarter of the world's soy production, is likely to be bearish for Chicago Board of Trade prices. However, benchmark prices have notched their biggest two-week gain since early September, driven by tight old-crop supplies in the United States.

Bird flu fears could also reduce China's corn imports, which are expected to climb to a record 6-7 million tons in the 2013/14 marketing year beginning October 1 on lower domestic supplies.

The avian influenza was first detected in China's commercial capital Shanghai and adjoining provinces at the end of March but cases have since been reported in the northeastern and central parts of the country. Investigators have yet to detect any human-to-human transmission of the virus.

The bird flu outbreak comes after some 16,000 pigs were found dead in China's Huangpu river last month, and KFC's parent Yum Brands saw its sales slide following the tainted chicken scare late last year, heightening concerns over food safety in China.

On Tuesday, Yum, which runs more than 5,100 restaurants across China, warned that fears surrounding the flu were continuing to depress sales.

Analysts said consumption of pork, the staple meat for Chinese consumers, remained steady. China had per capita animal protein consumption of 76.2 kilograms in 2010, one of the highest in Asia, according to analysts. That compared with U.S. protein intake of 129.5 kilograms per person in 2010.

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