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Global poultry markets remain bullish for the year ahead, although the impact of avian influenza will continue to affect trade patterns, according to the latest forecasts from analysts at Rabobank.

The first quarterly report for 2015 suggests high beef prices, relatively strong demand in most regions and low feed costs will benefit the sector, with margins remaining upbeat.

However, global poultry trade remains under pressure from avian influenza outbreaks, exchange rate volatility and political turmoil in the Middle East and eastern Europe, leading to lower trade volumes, prices and shifts in trade streams.

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“Avian influenza is spreading across the globe, with new outbreaks in Hungary, Nigeria and several states within the US, and ongoing outbreaks in China, Japan and India,” says the report. “The globalisation of the disease makes global industry approaches and company strategies more important than ever before.”

Export bans and exchange rate volatility contributed to big shifts in global trade streams last year, with Brazil and Thailand big winners in the third quarter, it adds. However, by the fourth quarter global trade volumes fell by 2% compared with the previous year.

“All key exporters were hit by these weaker trade conditions. For the (first quarter) of 2015, we predict a further decline (-3%), as this is usually the weakest trade season. Some recovery will occur in Q2, but the exact level depends on exchange rate developments and how fast importers lift restrictions on countries banned due to AI.”

Feed prices are expected to remain at current low levels, with some slightly upward pressure for wheat prices due to new crop concerns and Russian export restrictions, it adds. “Global corn and soymeal markets are bearish on expectations of the soya bean harvest in South America and later in the US, after farmers rotate some crops into soya beans.” 

Profit margins

US poultry producers enjoyed one of the most profitable years on record in 2014, averaging margins of 13% before interest and tax. The key factors behind these returns were tight domestic poultry supplies, consumers trading down from beef and pork to chicken, and favourable feed cost trends, says the report. “Looking to 2015, we expect most of these factors to remain, given the decline in US beef production coupled with soymeal cost relief this spring.” 

A recovery in pork supplies could threaten consumer demand in the US, but chicken production is set to grow by 4% in 2015, driven by a 2-3% increase in flock size and a 3% jump in bird weights due to lower feed costs, it adds.

In contrast, Brazil and Thailand’s industry performance is under pressure due to weaker global trade conditions. “In the first month of 2015, Brazilian poultry exports decreased 10% compared to January 2014,” notes the report. However, exports are set to pick up, driven by strong demand from Asia and the weak Brazilian currency against the US dollar. And with poultry production set to increase by around 3%, the outlook is an improving one.

In Thailand, export volumes increased by 10% in 2014, year-on-year, due to a shift in focus from processed exports to raw chicken. “The EU remains Thailand’s biggest export market, with total exports of 270,000t (+10%),” says Rabobank. However, the depreciation of the euro is a challenge as it makes products more expensive for importers.

Challenges

In total, EU imports increased by 2.4% in 2014, to 830,000t. “The market share of Brazil from a value perspective further declined from 51% in 2013 to 48% in 2014, while Thailand’s market share kept growing, from 38% to 40%.” 

Producer margins came under a bit of pressure in the EU last year due to a combination of increased feed costs, export restrictions following AI outbreaks and an oversupply of chicken in Q4 2014.

Although bird flu has tightened breeder supplies, which is now supporting poultry prices, the outlook remains challenging. “The current tight market situation is temporary in our view, and we expect production to increase in the next quarter.” Export restrictions will be lifted three months after the last AI outbreak, underlining the importance of optimal biosecurity, it adds.

Russian import sanctions, while bad news for EU and US exporters, are proving very beneficial to Russian producers, who enjoyed extremely good margins in the second half of 2014.

“The outlook remains strong, with expected ongoing tight market conditions.” Although the import ban could be eased in July, the weak rouble will discourage imports and potentially open up new export opportunities, says the report.

Import restrictions on chicken from the Netherlands, the UK and Germany due to AI outbreaks are also benefiting South African poultry producers, it adds. “Having said this, the recovery remains fragile due to the possibility of EU exports returning ≠ and also as the US keeps knocking on the door to open the South African market.”