The outlook for the global poultry industry will remain challenging over the coming months, as feed prices are expected to remain high, predicts Rabobank in its latest Poultry Quarterly. For the third quarter of 2012, Rabobank notes that the industry delivered a poorer performance due to increases in grain and oilseed meal prices and an inability to pass these costs on in most regions.
It notes that there is a strong need for supply discipline to keep markets in balance. Rabobank points to the U.S. where such an approach has been paying off. However, in China, prices fell during the first half and profitability decreased. Yet, not all is negative for the sector, and ongoing elevated prices for beef and pork continue to make poultry meat an attractive option.
Poultry producers all over the world are facing pressure on margins. Some countries, however, are finding a way forward. In the U.S., production cutbacks have improved supply and demand imbalances allowing higher costs to be passed on to customers, while in Russia, suppliers are partly subsidized.
Yet for Russia, this is not a long-term solution. The country’s upcoming accession to the World Trade Organization is worrying some local producers. Although quotas are expected to remain in place until 2020, there are fears regarding expected lowering out-of-quota levies, which could increase imports over coming years.
The Russian government is also considering cutting support to the agricultural sector by 50 percent as part of its 2013-2020 Agricultural Plan. Should this happen, the position of the Russian industry could be seriously compromised, as state support has been an important driver of growth.
Despite a slow start to the year, 2012 is expected to end with global trade in poultry meat 4 percent higher. Brazil and the U.S. will maintain their positions as the world’s main exporters, but Brazil’s position is expected to come under increasing pressure, despite a weakening of its currency.
Key elements influencing global trade in the near term will be the return of Thailand as a poultry meat exporter to the EU and the risk of U.S.-Mexico trade restrictions, which could seriously impact the U.S. industry.
Both the EU and the U.S. are expanding their market share of the global poultry market. This, together with Thailand’s return to the EU, will put pressure on Brazilian exports, which are already feeling pressure from European competitors in the Middle East, Brazil’s main export market. However, it will not be easy for re-emergent Thailand as, being a net importer of feed, the country will have to cope with high feed costs.
The Thai industry has already increased its production capacity significantly and the country’s return to the international arena will put downward pressure on prices. This new source of supply could be particularly attractive to Japanese importers, Rabobank believes.
The industry is currently having to cope with rising feed costs due to dramatic increases in feed input costs, due primarily to poor crop conditions in the U.S. However, harvests in Europe are also proving poor due to particularly heavy rainfall. Low stock levels in global grain and oilseed markets make these markets highly sensitive to changes in supply and demand.
Globally, most emphasis is on modernization of plant and expansion of capacity. In developed markets, efficient, modern production is growing as it offers a cost advantage, particularly in the face of rising input prices. In developing markets, the industry has been characterized by the construction of new facilities. A number of new developments will come on stream over the months ahead, particularly in countries such as Russia, China and Ukraine. In part, these developments are being driven by demand from quick-service restaurants.
Industry consolidation is forecast to continue, but at a slower pace than in the past. Recent acquisitions have included businesses linked to France’s Doux, and have included a 10-year leasing agreement with JBS for the company’s Brazilian division, Frangosul. This makes JBS the third-largest operator in the Brazilian market. In the U.S., Cagle’s Inc. was acquired by JCG Foods, an affiliate of Koch Foods.
In Russia, Cherkizovo has announced major investments in its agricultural activities, along with a joint venture with Spain’s Grupo Fuertes to produce turkeys for the Russian market.