Potential gains from ASF outweigh rising grain prices

The U.S. poultry market should see enough benefits from the African swine fever situation to offset either a slight rise in production or increased feed costs.

(Kharkhan_Oleg | iStockPhoto.com)
(Kharkhan_Oleg | iStockPhoto.com)

In the first quarter of 2019, we predicted opportunities in the U.S. poultry industry should outweigh obstacles for a rosy picture throughout much or all of 2019. So far, our forecast seems accurate.

We suspect that the WATT/Rennier Poultry Confidence Index (PCI) will remain highly optimistic over the near term.

Second quarter PCI figures

The PCI now stands at 134 (1996 = 100) for Q2 2019, up from 126 in the first quarter of 2019. The Present Situation Index – based on perceptions of current business and labor market conditions – increased to 161 from 136. The Expectations Index – based on the short-term outlook for income, business and labor market conditions – remained steady at 116, which is down slightly from 119 the previous quarter.

Our PCI trends mirror those of its cousin, The Conference Board’s Consumer Confidence Index (CCI). The CCI most recently posted another gain and is, according to a recent report, near an 18-year high.

pci-second-quarter-results-2019Q2

 

ASF should offset other difficulties

The topic most-often cited as having positive benefits for the U.S. poultry industry were opportunities associated with African Swine Fever (ASF) in China and other Asian countries. China is expected to suffer pork production losses of 25% to 35% by the end of 2019 due to ASF. Rabobank estimates global protein supplies will fall 5% to 7% due to an anticipated 10 million metric ton production drop.

Although the Chinese market generally prefers pork to poultry, U.S. chicken exports are anticipated to rise to help fulfill the overall need in Asia for replacement protein.

Long-term industry benefits are difficult to quantify. But, it’s clear demand in Asia for U.S. poultry will rise, most likely to a degree supporting production increases and keeping prices high. Potential benefits could be dampened by logistical challenges, most notably a lack of freezers, cold storage and containers.

PCI survey participants on ASF                                                           

The PCI survey asked respondents to describe how ASF will affect their production:  84% said no change and 12% said they would increase bird weights, while 4% said they would decrease overall production volume.

In retrospect, many of the new facilities and upgrades occurring over the last couple of years seem to be perfectly timed to take advantage of this opportunity.

Finally, some respondents sounded the alarm about overproduction and potentially high feed costs. However, the U.S. Department of Agriculture recently revised its 2019 broiler production forecast downward and delayed soybean and corn plantings now more closely approximate 2018’s schedule.

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