Will it be a question of glass half full or glass half empty for the global poultry industry in 2023? While the market outlook is strong as 2022 draws to a close, the sector is, nevertheless, burdened with high input costs and significant uncertainty.
Looking to the positives, demand for chicken meat remains healthy and global supplies are tight. Economic conditions are deteriorating around the world, with an upturn seen as being some time away. Consumer behavior, in the face of uncertainty and higher inflation, is more cautious which, where food purchases are concerned, tends to favor chicken.
Against these strong market conditions needs to be balanced continuing high costs, be they for feed, labor and distribution or energy, with the latter accounting for an ever-greater portion of the cost of producing a chicken. High energy costs, however, are affecting some regions more than others. Similarly, avian influenza (AI) continues to impact some major production regions.
High costs to continue
In its latest Poultry Quarterly report Rabobank notes that feed costs are forecast to remain high, even if they are below the highs recorded earlier this year. As 2022 draws to a close, prices are similar to those recorded in Q1, and are expected to remain so for a number of months. While still high, this will be 10-15% below those for Q2 2022.
This decline can be attributed, in part, to Brazil’s relatively strong corn and soybean crops entering the market over the last six months and the good wheat and soybean corps expected in the U.S.
While there may be at least some good news where feed costs are concerned, this is not expected to be the case for energy, especially in Europe, where gas prices, for example, remain exceptionally high.
High energy costs will continue to impact both at the farm and processing levels. In the case of the latter, it will, in particular, exacerbate, CO2 shortages and costs, as well as prolonging high cold storage and distribution costs.
Higher energy costs, however, are not impacting all regions equally. Europe, North America and Northeast Asia are the most affected regions, while there has been less of an impact in others, particularly in the Southern Hemisphere.
AI continues to spread globally, with ongoing cases in the Northern Hemisphere, even in summer months, and in Southeast Asia and Africa. The ongoing risk of the disease’s spread, and disruptions to trade in breeding stock, is causing a tight supply situation in some regions.
Europe, the U.S. and Mexico are the countries that have been hardest hit, and the virus’s persistence outside of the winter season suggests that it is becoming more endemic.
Glass half full
While the global industry is having to live with supply-side issues, demand for chicken meat remains strong. A weaker economic climate and pressure on spending will lead to greater chicken meat consumption in many markets.
Good market conditions, however, are not universal. In Brazil, for example, producers have been struggling with weak demand on the home market and rising supply, Rabobank notes. There has been some improvement, as feed costs have come down and prices risen, but the market remains challenging.
Similarly, in the U.S., rising supply is leading to some reduction in profitability, but both the U.S. and Brazil are doing well in export markets.
In Europe, the market is more positive. Chicken prices have remained high due to production being below 2019 levels, while in China, after a difficult first half, the market is recovering with limited supply. In Thailand, the impact of African swine fever on pork supplies is keeping local chicken prices high.
In Japan, prices have been rising and stocks run down in response to the local industry’s inability to raise output in line with strengthening demand. In Southeast Asia, countries such as Vietnam, Malaysia, Bangladesh and Indonesia have seen government intervention due to rising prices.
Tight local parent stock supplies have been occurring in some parts of the world, for example in several African, Middle Eastern and Latin American countries, due to the effects of COVID-19 and AI.
These tight local supplies have been positive for trade. 2022 has witnessed record highs, and conditions are forecast to remain tight over the months ahead. Chicken prices have stayed high in global markets, and the value of leg and breast meat prices has been rising. Due to weaker demand from China, the price of paws has been falling, however, this is expected to reverse.
Major importers, such as Europe, Japan, Saudi Arabia and the United Arab Emirates, have all been importing more.
In some markets, for Saudi Arabia, South Africa, and the Philippines, import controls have been relaxed to help control inflation. Other countries may be expected to follow suit.
The biggest beneficiaries in global trade have been the U.S. and Brazil, which recorded growth of 12% and 8% respectively during Q2.
European exports have been heavily hit by AI related restrictions, while Thailand has also experienced difficulties in international markets due to higher costs. Thailand may be able to recover some of its lost ground as 2023 progresses, but the main beneficiaries over the months ahead are expected to be Brazil, the U.S. and China.
Turkey is also expected to benefit, helped by its weak currency, while Ukraine should gradually recover its position, particularly with support from the European Union.