The global poultry industry continues to operate in a challenging market place, but conditions for 2013 are improving; a reduction in corn prices in recent months has been a welcome break for an industry that saw margins shrink in many parts of the world throughout 2012. According to Rabobank, the poultry industry’s pricing power should improve, with continuing high prices for competitor meats such as pork and beef leading consumers to choose the cheaper poultry option, and an improving supply discipline in some key producing countries.
“Despite the positive picture, this outlook is very fragile and dependent upon risks related to feed costs and supply discipline," said Rabobank analyst Nan-Dirk Mulder. “As grain and soybean stocks remain low, supply discipline will be a key tool for the industry to maintain margins. This has been demonstrated in Brazil, where production cutbacks have paid off in improved margins. Regions with inadequate market balance, such as South Africa and India, need to reconsider production levels in the next few months. This is also the case for producers in the EU where performance worsened throughout 2012, although Q4 did see some improvement.”
Global poultry industry performance has been affected by the increasing feed prices and local market supply/demand balance. Companies active in countries with a relatively good or improving local market balance have been the first to benefit from an improved market situation. Brazil, in particular, has benefitted from more disciplined supply management. The opposite is still the case in South Africa, India and Thailand, where industries are still exposed by oversupply, although signs are that in Thailand and India things are improving slightly. The best performing local industries are still in Russia and Ukraine, with ongoing high margins and a good local supply situation with growth in local demand, although prices in Russia have tended to decline recently.
The performance of poultry companies in 2013 will depend, to a large extent, on how well they are able to deal with volatility from grain and oilseed prices. Although the current outlook suggests a slowdown in feed price increases, uncertainty remains due to low stock levels and an uncertain production outlook for grains and oilseeds. The industry should therefore be prepared for any change in input prices. It has been proven that an optimal supply management system will be a key element here. In addition, further optimisation of industry structure should become a higher priority for companies in which elements such as market power, efficiency and risk mitigation are key for 2013.