The removal of 20 Brazilian export plants from the EU export permission list was a major blow for global breast meat trade, said the analysts.
The EU is the only significant importer of breast meat worldwide, as other potential markets such as the US, Canada and Australia are more or less closed for breast meat imports.
The removal of those plants from the EU register came at the same time (June 2018) Saudi Arabia introduced new halal standards, preventing poultry that has been stunned being shipped into that market.
The Brazil poultry industry was also hit by rising domestic feed prices due to the China-US tariff war, with China turning to Latin America for soybeans, pushing up prices for local users.
However, despite the ongoing, pressured Brazilian export volumes to the EU and Saudi Arabia, the analysts said Brazil could look to export more volumes to other markets such as China, the United Arab Emirates and South Korea.
Rabobank sees continuing volatility in the worldwide poultry sector in H1 2019, with factors such as the growing supplies of other proteins - US pork and beef production, for instance, will likely to be in an oversupply situation – likely to weigh in on prices and global trade flows over the coming months.
Rebalancing local and international markets
Under such very volatile conditions, being restrictive in supply to keep markets balanced is key, and regions involved in trade, like the US, the EU and Thailand, should follow the successful steps taken in Brazil, South Africa, and Russia, noted Rabobank.
“The move by the Brazilian industry to reduce production – down 2% in 2018 – has been an important step in rebalancing local and international markets. This has meant an improvement in prices in Q4 and will be important for recovery in H1.
“This should be an example for industries in the EU and Thailand where price levels have been depressed due to oversupply. In the EU, this is a combination of new expansion in Eastern Europe together with a temporary but rapid rise in frozen poultry products from Brazil. Other countries such as Russia, South Africa, Indonesia and India are currently benefiting from a more disciplined supply strategy and are reporting ongoing strong profits.”
Recovery in H2
Rabobank sees gradual recovery, however, in H2 next year.
China will be at the forefront of that upturn, said the analysts, given the impact of African swine fever (ASF), which will lead to higher broiler prices in China and some consumers switching to chicken from pork.
Global poultry trade will likely focus more on China in H2 as local Chinese chicken production is restricted by low breeding-stock availability. Countries who can supply China are well positioned to benefit from this situation, such as Brazil and some Eastern European countries, including Russia, which are just gaining access to Chinese markets, according to the report.
Wildcards for the outlook are the outcome of the China-US trade negotiations and ongoing avian influenza pressure. Both factors could change global poultry market conditions, especially when combined with a return of US chicken in the Chinese chicken market, which Rabobank said would be a major blow for global trade flows.