What lies ahead for poultry producers during the closing months of 2020? According to Rabobank, the outlook has become more positive, but plenty of challenges remain.
In its latest quarterly forecast, Rabobank notes that the gradual easing of restrictions in countries recovering from the initial phase of the COVID-19 pandemic should result in improved demand and prices. The latter will be helped by producers cutting back on placings. For those countries still approaching peak infection, the outlook remains clouded.
Complicated recovery
Different countries are at different stages in COVID-19’s impact. Improvements will not progress at the same rate across markets, and some markets may even move backwards if new restrictions are introduced. Additionally, the world has entered a recession, which is expected to be the primary influence in many markets in the months ahead. Rabobank forecasts that global GDP will contract by 3.9% this year.
However, demand for poultry in many markets should continue to strengthen as foodservice gradually reopens and consumers are able to move more freely. This will favor breast meat and help poultry prices recover from historic lows. Dark meat will be main winner in coming months due to lack of supply in some markets.
Trade will remain volatile during the second half of 2020. In addition to supply imbalances, exchange rates will remain volatile, while market access issues could alter trade flows. Increasing consumer preference for buying locally could also impact sourcing.
Additionally, trade agreements and restrictions may also challenge international markets. The US-China trade relationship, Brexit and moves in the Middle East to become more self-sufficient will be the main factors altering trade patterns.
Re-opening of foodservice in those countries emerging from the worst of the pandemic will boost demand for poultry meat. stock_colors | iStock.com
Volatility
Poultry initially enjoyed price increases with the emergence of COVID-19, as consumers stocked up on food prior to the imposition of lockdown measures. Significant falls in most markets once containment measures were in place followed the sudden increase in demand. Restaurant closures and limits on retail hit poultry hard.
Demand for poultry products suffered double digit declines in many markets, with India recording a decrease of more than 50% during March and April.
While the pandemic appears to have peaked in most developed countries, most emerging markets are still struggling.
Different countries have been affected in different ways. In some markets, foodservice is a significant part of the poultry value chain, representing 15-60% of total poultry production. Restaurant closures hit these markets particularly hard. However, in some emerging markets it is fresh birds that dominate the channel – accounting for up to 95% of sales. Restrictions on access to retail was more harmful where this is the case.
In response to declining demand and prices, producers tended to restrict chick placements which has led to greater balance between supply and demand. In some markets, particularly in those loosening restrictions, prices have started to recover or are expected to do so, and total production by year end may, in some cases, increase.
Swings in demand are expected to continue, however, producers will need to be responsive to these changes if a recovery is to be maintained, Rabobank notes.
Trade
Trade should enjoy a degree of normalization over the months ahead.
China will continue to be the main market for poultry exports due to its lack of animal protein supplies resulting from African swine fever (ASF). The country’s poultry meat imports increased 89% over the first four months of this year, with significantly more sourcing from the U.S. and Russia. China's demand for meat of all types is forecast to continue.
Meat shortages are not only happening in China. By year end, they may start to occur in other markets, particularly in the Middle East, Africa and Asia as demand begins to return but supplies tighten.
This may prove beneficial for export-orientated companies, however, companies enjoying the greatest benefit will be those operating in markets where foodservice has reopened. In the U.S., for example, quick service restaurants were reported to be almost back to normal in early July.
The U.S.-China trade deal is expected to lead to further opportunities for U.S. exports. To date, the deal has proved favorable for U.S. exporters and volumes are expected to continue increasing.
China is now Russia’s main export market, and its exports to the country are expected to continue rising. At the start of this year, Russia was granted access to export poultry meat to the United Arab Emirates and some areas of Russia can now also export to Japan. The country has also gained access to the Philippines, Singapore and Cuba, making it a major player on the world stage.
The UK is among the biggest destinations for intra-European Union (EU) trade and Brexit, due to conclude at the end of this year, is likely to significantly alter intra-EU trade flows.
Saudi Arabia, along with other Gulf states, has gradually imposed stricter requirements on imports, which will see local demand increasingly satisfied by local producers.
Feed price benefits
The poultry industry is also expected to be boosted by favorable feed prices, with feed grains being up to 20% lower than was originally forecasted at the start of the year. However, against this needs to weighed the higher cost of some feed additives due to ongoing supply chain issues.
For many developed nations, the worst of the economic shocks appear to now be in the past. However, even in nations that are now past the peak of the pandemic, health concerns will remain and may cause continued interruptions. Until there is an efficacious vaccine against the virus, it will continue to impact markets.
Lower chick placings, combined with gradual return to normal in some markets should lead to price improvements. Vadym Terelyuk | iStock.com
China’s poultry sector to be stronger post COVID-19
10-year outlook
The longer-term outlook for meat production remains positive, and the main beneficiary over the next 10 years will be poultry. By the end of this decade, demand for meat is expected to be 12% higher, with a significant share of this increase attributable to poultry meat.
Global meat production has faced a difficult couple of years, contracting last year to stand at 325 million metric tonnes (Mt), and reaching a new low point this year, reports the OECD FAO Agricultural Outlook 2020-2029.
Last year’s contraction is attributable to the outbreak of ASF in China and its spread into other countries. Effects of the disease are expected to be felt for at least the next five years, with increases in production of other meat types only partially offsetting the lack of pig meat.
ASF has led Chinese consumers to turn to alternative sources of meat, in particular poultry, and this is boosting production of poultry meat and eggs in the country, while boosting demand on global markets for meat of all types.
Growth in meat consumption will increase in developing regions due to high population levels and growth rates. Consumption growth will be five times the level of that in developed countries.
Growing demand for meat, coupled with supply constraints, will act to support prices.
Poultry is expected to account for half the additional meat consumed by decade's end – or 145 Mt. It will benefit from already playing a substantial part in the meat consumed in several developing countries. Nevertheless, a significant gap will remain between the developed and developing world, with the developed world consuming three times the amount consumed by developing nations on a per capita basis.
Favorable feed prices are expected to further support meat production and consumption; however, disease outbreaks may act as a constraint.
The share of traded meat at the global level is forecast to grow over the next five years, particularly driven by demand from China. In the more medium term, it will be demand from low income countries, particularly the least developed in Africa, Asia and the Middle East looking for more meat, that will boost global trade.
