A key driver of the gradual recovery in the global poultry market will be ongoing strength in trade flows to Asia in order to supply African swine fever (ASF) affected markets such as China, Vietnam, South Korea, and the Philippines, said the analysts.
“These trade flows will be positive for dark-meat prices, though they will be subject to increasing volatility. The downside is that global whole-bird and breast-meat markets will remain pressured and have limited price upside.”
Improved beef prices, the main substitute for fresh poultry, stable global average feed prices, and more balanced supply will also all support the gradual recovery of the global poultry sector.
Looking at current feed price trends, they see that soybean stocks are still sufficient, although slightly below last year’s levels, due to lower US soybean supply. However, they are offset by lower buying activity, especially in China, said the analysts. Corn and wheat markets are currently balanced, with lower US supply being compensated by higher supply from eastern Europe, they added.
ASF remains a key theme
The ongoing impact of ASF outbreaks in Asia – and, to a lesser extent, in Europe – will remain one of the key themes for the year ahead, said Rabobank.
“This will have a big impact on total protein availability in local markets, given the expected drop in pork production in China of 15% – after the 25% drop in 2019.
“Pork production in Southeast Asian countries such as Vietnam, the Philippines, Cambodia, Laos, and Myanmar is also heavily affected by ASF and faces significant drops - 10% to 25%.
“For 2020, the threat of the ongoing spread of ASF will impact production decision-making by poultry farmers.”
The US has now regained access to China, after being out of the market for four years after a case of avian influenza (AI) in 2015. Meanwhile, Russia and Ukraine are also gaining access to many global markets, showed the report.
“European countries are also expected to gradually see improved access to the Chinese market, although the process has been slow. Brazil has opened the Indonesian market, with first shipments expected in 2020; meanwhile, the US started initial shipments of poultry to the Indian market after winning a WTO case.”
The biggest wildcards in terms of poultry market stability for 2020, as per the outlook, are:
For feed prices, there are some potential risks, said Rabobank.
The US-China trade negotiations, ASF, and weather could all potentially affect the outlook. A trade deal that delivers better access for US grains and oilseeds to China could be bullish for prices, while a worse ASF situation could be a downside for prices, said the team.
The number of AI outbreaks in the northern Hemisphere has been relatively limited in 2019, with just a few cases in Mexico and Taiwan. Experiences in other years has shown high risk in the period January to April.
“Any outbreaks in key production areas such as the EU, Japan, or the US can impact the outlook for the whole industry. In China, where human cases had a big impact several years ago, it could make the local situation even worse. Optimal biosecurity at farm level is needed in order to reduce risks.”
The UK still plans to leave the EU by the end of 2020, and this could shake up local EU trade – along with Germany, the UK is the big intra-EU import market, noted the quarterly.
Poultry industries in the Netherlands and Poland are highly dependent on trade to the UK. Under any Brexit scenario, trade will surely be more difficult, and local UK production will likely increase, said the analysts.
“Exactly how much of a difficulty Brexit will pose for the EU poultry industry remains to be seen. Industry preparations to optimize production and refocus trade flows within Europe are not easy. This could affect market conditions throughout 2020. At the same time, Brexit could also be an opportunity for potential non-EU exporters to the UK, such as Brazil, Thailand, China, and the US. Any trade agreement with these exporters could impact the competitive situation in the UK and will likely impact the frozen poultry market.”
In previous years, large disruptions in global trade have taken place, with openings like free-trade agreements between the EU, the US, and Japan; the free-trade agreements between the EU, Vietnam, and South Africa; and the openings of Indonesia and India for Brazilian and US imports, said the analysts.
“The reopening of China for US poultry is equally important here. At the same time, we’ve seen trade between Brazil, Saudi Arabia, and the EU becoming more difficult. For 2020, there are still pending trade disputes, with US-China trade negotiations being the major one. Although chicken exports to China have already been opened, trade access could be facilitated by reducing tariffs. This could strengthen the position of US poultry and lead to changes in global trade flows, with more space likely available in traditional US export markets like Mexico, Cuba, and Angola, among others.”
The rise of Ukraine and Russia as global exporters, with more markets opening for their exports, is also a disruptive factor for global trade, warned the Rabobank team.
From a market-access perspective, the shifts toward local food security in the Middle East, South Africa, Nigeria, and Ghana will likely mean lower – or at best, stable – export flows, and could hit US and EU exports, commented the analysts.