The global poultry industry, with the exception of the U.S., can expect bearish conditions, says the latest report from Rabobank.
The bank's food and agriculture research team says that bullish poultry market conditions are turning bearish due to recent grain price hikes caused by turmoil in Ukraine and El Niño related worries. Rabobank further says that abrupt increases in feed prices (up by 10-15 percent versus earlier expectations), avian influenza outbreaks in China and a weaker Asia economy are expected to affect margins in the second quarter.
"The effect on companies hinges on their regional balance and longer term forward-hedging," says Rabobank analyst Nan-Dirk Mulder. "A slowdown in global trade volumes and lower product prices, especially for leg quarters, will affect companies in international trade and lead to shifts in global trade streams. Brazil is likely to be affected the most, while Thailand is likely to benefit due to its recent return in the Japanese raw chicken market."
Additional major shifts in trade streams are also expected in the months ahead, including pending anti-dumping duties on EU poultry in South Africa, a new temporary free trade agreement granting Ukraine access to the EU market via quotas and the potential return of exports from the U.S. to Chinese markets. These developments, taking place under weak global trade conditions in a traditionally weak season for chicken meat, could all have a large impact on global poultry trade.
Another profitable year is forecast for the U.S. chicken industry as other competing animal proteins experience constrained supplies due to porcine epidemic diarrhea (PED) virus in pork and a shrinking U.S. beef supply.
Rabobank anticipates a further reduction in margins as South Africa -- the EU's biggest export market -- considers anti-dumping duties and the EU considers opening its markets to Ukraine in the short term.
The Chinese poultry industry suffered big losses after being hit by an outbreak of avian influenza for the second time in less than a year. The disease has negatively impacted demand, as consumers are concerned whether poultry is safe.
Despite a good grain harvest outlook, and improving local demand, a challenging export market will be the key wildcard in 2014.
Russia continues to struggle with oversupply problems. Exports have continued to grow but remain small. High competing protein prices and the depreciating ruble should support margins, however.
The performance of the Indian industry is recovering from oversupply, while Japanese market conditions are bullish. The recent opening of Japan for Thai chicken continues to affect trade streams.