Pressure to ease on Indian poultry producers as soymeal prices predicted to go lower

Last week saw the Indian National Egg Co-ordination Committee (NECC) ring the alarm bells, saying 20 to 30% of poultry farmers have closed down or suspended activities in recent months and some are on the verge of bankruptcy.

Rabobank’s Pawan Kumar confirmed the vulnerabilities of the sector, telling us poultry farmers have experienced their worst first half year performance since 2009, with major pressures on margins due to high feed grain costs and production surplus, and no hike in the farm gate price to compensate for the bigger outlays.

And poultry producers, said the Singapore based analyst, have also not been able to pass on higher costs to the consumer, with a downward trend in chicken meat purchasing seen in India following the economic downturn.

“Profitability for the poultry sector in Q1 declined 70% YOY, while there has been massive volatility in soymeal prices – these have jumped 40% from $548 a ton in January to $780 a ton in May,” ​said Kumar.

The Iranian factor ​

He said bidding wars at government approved grain auction markets had been a factor in forcing soymeal prices higher with an ongoing tussle seen between buyers who seek to ensure stock for domestic use and those who were targeting the higher premiums attached to soy exports to Iran.

Iranian soymeal buyers had been paying an additional fee of 10 to 15% over world prices for soybean meal from India as financial and trade sanctions from Western markets had make it difficult for them to secure supply from other soy exporting countries.  

But Kumar expects a reversal somewhat of recent trends on the export side:

“Soybean growers will go where they can get the best price and the hike in soy exports to Iran over the past few years due to the premium guaranteed saw a dramatic reduction in the quantities of soymeal left for the Indian market.​

But Indian poultry producers, who use around 4 million tons of soymeal annually in feed, can draw some comfort from the fact there will be softer soymeal prices in the next quarter arising from better availability on the domestic front as exports to Iran taper off and as global soybean prices weaken.”​

Indian suppliers are now being challenged by soy exporters from Latin America and other exporting countries eying the potential of the Iranian market, as trade sanctions from the West on Iran ease due to the partial agreement reached on its nuclear program in November last year.

Soy planting delayed ​

Kumar expects this year’s soy crop in India, despite planting being delayed by unusually dry weather, to soon be on par with 2013. “Planting is currently behind by about 20 or 30% but it just needs one or two weeks to recover to last year’s acreage levels,”​ said the analyst.

While the government introduced a 0% duty free policy on soybean imports, the Asian specialist said the policy had not greatly alleviated the soy supply shortages as it can be months before the additional meal gets to the poultry producers due to the cumbersome processes involved.

Higher soy yields urged ​

Indian soybean yield is one of the lowest in world - at one ton per hectare, it is well below the global averages of 2.5 tons per hectare.

There is huge room for improvement, said Kumar, and just by reaching world average, India could more than double its production.

“What is needed is a governmental push for greater process efficiency at the farm level, investment in seed technology that will increase soybean yields and education around best practice in soybean farming methods,”​ said the analyst.