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UPDATE 5-Reshaping grain trade? China moves to change animal feed recipes

 (Adds analyst quote, adds corn and soybean futures price gains)
    By Dominique Patton and Hallie Gu
    BEIJING, April 21 (Reuters) - China issued guidelines on Wednesday
recommending the reduction of corn and soymeal in pig and poultry feed, a
measure that could reshape the flow of grains into the world's top corn and
soybean buyer.
    China's corn prices surged more than a third in the most recent year
following a drop in output and state stockpiles. The country started importing a
lot more corn to compensate for the domestic deficit. So feed
makers have already been switching to cheaper alternatives, especially wheat.
    Benchmark corn and soy futures on the Chicago Board of Trade
notched fresh multi-year highs on Wednesday, so China's new guidelines may not
do much in the near term to temper soaring feed costs.
    The Ministry of Agriculture and Rural Affairs said in a statement on its
website the new guidelines are aimed at improving the usage of available raw
materials and creating a formula that better suits China's conditions. 
    China consumes about 175 million tonnes of corn in animal feed each year,
and that should increase as more livestock is raised on intensive farms using
industrial feed.
    The country also imports close to 100 million tonnes of soybeans to crush
into soymeal for animals, agriculture ministry data shows. 
    The ministry said rice, cassava, rice bran, barley and sorghum were also
suitable alternatives to corn, while rapeseed meal, cottonseed meal, peanut
meal, sunflower meal, distillers dried grains, palm meal, flaxmeal, sesame meal
and corn processing byproducts were good options to replace soymeal.
    The guidelines may only affect firms that were not already keeping up with
the trend towards substitution, Li Hongchao, senior analyst at trade website
Myagric.com, said.
    Greater feed use of wheat, which has more protein than corn, has already cut
demand for soymeal.
    A wheat products trader, however, said it could have "a significant impact".
    "Many feed producer clients are still using quite a bit corn. They have
reduced the usage but haven't cut off corn completely," he said, declining to be
named because he was not authorised to speak with media.
    Some analysts questioned if China's massive appetite for imported feed
grains would be reduced much by alternative feeds, which are produced in much
smaller volumes than corn and soy.
    "It's hard to see how this changes anything. If it was economical to switch
to barley and rapeseed meal for rations, then firms would have already done it,"
said Darin Friedrichs, senior analyst at StoneX.
    "The volume of soybeans the U.S. can load in a single day is larger than the
yearly global export volume of cottonseed meal," he added.
    The ministry also provided some suggested feed formulations depending on the
region of the country.
    Those included reducing corn by at least 15% in pig diets in Northeast China
by using rice and rice bran, or using sorghum, cassava flour, rice bran meal and
barley to replace corn in pig feed in southern China.
    In some regions, it recommended eliminating soymeal completely and replacing
it with other meals.
    For pig feed only, if hog production went back to levels at the end of 2017,
and feed producers substituted corn and soymeal in accordance with the
recommended ratios, it would cut corn use by 40-50 million tonnes, and reduce
soymeal use by 4-8 million tonnes, according to Lu Min, analyst with brokerage
Zhaojin Futures, citing a rough estimate. 
    Analysts and industry sources said, however, it would be difficult to give
total estimates on exactly how much corn and soymeal will be cut following the
guidelines, as for example, under some of the recommended diets, use of corn is
cut, but more DDGs, corn protein power, and amino acids are suggested, which are
made from corn. 
    "Also, this is just a suggestion to companies, not forceful (rules) they
must implement. Whether firms will choose to substitute or not depends on the
cost," said Wang Xiaoyang, analyst with Sinolink Futures, adding that in
reality, some feed producers have already substituted corn and soymeal at a much
higher ratio than the official recommendation.  
    "The cost is the fundamental factor," Wang said.
    The table below shows the recommended changes by region for pig feed:

                Corn       % of corn      Soymeal    % of soymeal
             replacement      cut       replacement      cut
 Northeast     10%-20%    at least 15%    5% corn    at least 10%
              rice and                    protein    
             5%-10% rice                  powder,    
                bran                    5%-15% DDGS  
                                         and amino   
                                           acids     
   North     10%-20%whea  at least 15%    5% corn    can cut to 0
                t and                     protein    for growing
               5%-15%                   powder、5%-1    finisher
             wheat bran                  5% DDGS,        pigs
                 or                        5%-8%     
              secondary                 cottonseed   
             wheat flour                   meal,     
                                          5%-10%     
                                        peanut meal  
                                         and amino   
                                           acids     
  Central      10%-20%    can cut to 0    5%-15%     can cut to 0
             brown rice                  rapeseed    for growing
               or rice                  meal,5%-15%    finisher
               、5%-15%                     DDGS,         pigs
             wheat bran                 5%-8%cotton  
                 or                      meal and    
              secondary                 amid acids   
                wheat                                
             flour, and                              
             5%-10% rice                             
              bran meal                              
   South       10%-15%    can cut to 0    5%-15%     at least 5% 
             sorghum,10%                 rapeseed    
                -20%                     meal and    
               cassava                  amid acids   
               starch,                               
             5%-10% rice                             
             bran meal,                              
             and 10-15%                              
               barley                                
 Southwest     10%-20%    can cut to 0     5%-8%     at least 5% 
             wheat,10%-2                cotton meal  
              0% brown                   and amino   
               rice or                    acids      
                rice,                                
               5%-15%                                
             wheat bran                              
                 or                                  
              secondary                              
                wheat                                
             flour, and                              
             5%-10% rice                             
             bran meal                               
 Northwest     10%-15%    can cut to 0     5%-8%     at least 5% 
              sorghum,                    cotton     
               10%-15%                   meal, and   
             barley and                 amino acids  
               10-20%                                
              highland                               
               barley                                
 
    
 (Reporting by Dominique Patton and Hallie Gu, additional reporting by Karl
Plume in Chicago; Editing by Jacqueline Wong, Barbara Lewis and Paul Simao)
  
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