“We see feed significant regional difference in feed costs related to the impact of adverse weather conditions but also currency fluctuations,” said Nan-Dirk Mulder, senior Rabobank animal protein analyst.
The southern hemisphere has been hit by El Niño weather patterns with countries like India and South Africa experiencing drought and feed prices have rocketed in those markets. There has been a high level of cattle liquidation in South Africa and chicken mortality in India.
In the Ukraine and Brazil, the weak local currency has sent local feed prices higher especially on strong export demand.
Typically, Q2 sees a seasonal decline in corn prices in Brazil, but unfavorable climatic conditions meant such a decrease did not happen in April, maintaining the pressure on the chicken sector.
Mulder told us while the long term perspective on corn prices in Brazil is bearish, the poultry industry has to be proactive: “Poultry producers in Brazil will have to exercise some discipline and produce less than planned to allow for market recovery.”
He said the short production cycle of poultry supports such salvaging action.
From Russia with…
Russian poultry players, which experienced significant growth in the two years following the restrictions on imports due to sanctions imposed on the EU, have been under pressure in the past few months.
Broiler prices have been flat and feed costs jumped 20% in the past six months. The industry is also facing stiff competition from declining pork products. “The poultry sector there has now hit nearly 95% self-sufficiency and will have to enter the export game to avoid a situation of oversupply. There will be a delay though in terms of market access as the Russian companies must wait for export approvals,” said the analyst.
The situation in India is quite positive, said Mulder. The industry’s profitability increased in Q1 after a dull Q4. “The margins are better with robust poultry prices more than offsetting the high feed costs. This should allow producers to invest in production,” said the analyst.
While corn prices have softened in India, soybean prices are at a one year high, he noted. But further contraction of production in the summer is expected to bolster bird prices, said Mulder.
US regains export traction
Meanwhile, the quarterly reported on the “faster than expected” return of the US in many international markets after avian influenza (AI) related trade restrictions. This development is shaking up global trade streams, with Brazil and the EU aggressively defending market share via price concessions, noted the report.
In the EU, the poultry industry is on an upward trend as feed costs are down 4% and margins are above March and April 2015 levels. Broiler prices are 1% higher and, even though internal demand is soft, export levels are proving robust.
Mulder highlights the increasing relevance and scale of chicken production in Poland, Hungary and Romania. “These markets are becoming more and more critical for standard broiler production as welfare constraints related to density of production limit output in countries like Germany and the Netherlands,” said Mulder.
Countries like China, South Korea, Thailand and Indonesia are currently moving into short supply due to reduced breeding stock availability, which the analyst said will support increased exports to those Asian markets in the coming months.