Rabobank: poultry prices will fall but industry is recovering

Rabobank’s latest Poultry Quarterly report said that the international poultry industry will begin to recover after the first quarter of 2016 as oversupply in the market balances out.

Global prices are expected to bottom out this financial quarter after prices went into “freefall” in the last quarter of 2014, with breast cuts and whole birds falling in price by up to 20 percent last year.

Tight global supply could see the beginning of a recovery, but this will be tempered by the ongoing effects of avian influenza outbreaks and international currency fluctuations.

More differentiation is also expected in the industry this year, as natural or free range poultry also gains market traction in countries like the US “whereby early adaptors can gain an attractive margin benefit”, according to the report.

Total trading for the fourth quarter of 2015 was 2.9 million tonnes, 2 percent below the third quarter and resulting in a 2.9 percent fall from total trading measured by weight in 2014 for the whole year.

Chinese demand for chicken imports will increase in the second half of 2016, but importing breeding stock from the European Union and the US is still banned because of avian influenza. In China, the flock could be reduced by up to 50 percent due to lack of imported breeders and the danger of avian influenza.

The import price of chicken feet for China has gone up over the last two years, in contrast to other poultry prices. This is traditionally a strong market for the US, which is currently impeded by the ban. This could provide an export opportunity for Brazil.

Brazil will be buoyed by domestic demand for poultry, driven by demand for cheaper meat and dwindling availability of beef, as well as the potential for Chinese imports. However, producers’ margins will be tightened by the price of grain.

In January 2016, US producers held back supply, a good sign that production growth will be moderated in 2016, keeping prices at their current rate.

“With our outlook of flat exports, the US consumer will be asked to take on only half the increase in consumption of last year, supporting prices and profitablility throughout 2016,” the report said.