egg processing

Falling feed costs for most of 2014 led to better margins for egg and poultrymeat producers, though markets remain delicately poised for 2015. Ken Randall reports

EGGS

For the egg sector, 2014 looks to have been the year when the industry finally balanced itself up after the chaos following the ban on conventional cages at the start of 2012.

The past year has been the most profitable period, for free-range producers in particular, during the three years since the ban was introduced.

Back at the start of 2012, with the economic downturn still biting, the anticipated demand for free range failed to materialise, while too little colony capacity was ready in time. The result was widespread cascading of free range into intensive sales and a depressed market.

Market balance

With the economic outlook improving and demand for free-range eggs growing again, the balance of supply and demand has now shifted decisively in favour of free range versus colony.

There is a danger, however, that the benign conditions could be short-lived. The main concern now is that, as demand for free range continues growing, output will start rising in tandem, while an excess of colony eggs from relatively new units will weigh increasingly on the market in the medium term.

Already a huge gap has opened up between wholesale prices for the two egg types. When things were at their worst, in March 2012, the wholesale price differential on large eggs between colony and free range narrowed to just 10p/doz. In November 2014, this premium had steadily widened to reach nearly 60p/doz.

It was a similar pattern on prices paid to producers, though the differentials were more muted. During the first quarter of 2012, the producer price premium on free range averaged around 11p/doz. During the first three quarters of 2014, it was around 16p/doz.

Egg supply

Figures for UK egg production from 2012 to 2014 bear this out. Between the start of the period and the third quarter of 2014, free-range production was pretty much flat at about 2.9m cases in each quarter.

For colony, in contrast, first quarter output 2012 was 3.1m cases; but third quarter 2014 was 3.6m cases – a new quarterly high and an increase of half a million cases over some 30 months.

Taking account of a corresponding fall in barn and organic output of about 50,000 cases, the level of egg production in the UK was up by some 350,000 cases a quarter from January 2012 to September 2014.

As our chart on p14 of the estimated size of the UK laying flock shows, based on chick placings, the peak month was August. Since then, and thanks to a downward trend in day-old pullet placings, the flock size looks set to decline through to at least March this year – so a period of relative price stability in the egg sector is to be hoped for in the short term at least.

Producer prices

Actual prices paid to producers, for both colony and free range, have risen and fallen again over the past three years as they follow the movements in feed costs.

A more useful figure when trying to assess profitability is Poultry World’s simple egg-price-to-feed-costs ratio, calculated each year as part of our Facts and Forecasts report. This has improved markedly from 2012 to 2014.

In 2012 overall, the ratio had reached a low of 0.37 on free range for example, but has since risen to 0.40 in 2013 and 0.42 over last year as a whole.

However, this level of profitability still falls well short of the levels available a few years earlier when the ratio stood at 0.48-0.50 from 2007-2009.

As British Egg Industry Council chairman Andrew Joret has recently warned, those days may be gone for ever. Most retailers include in their offer some sort of value pack of six free-range eggs for £1, typically in mixed weight boxes.

In the intensely competitive retail climate that now exists, such packs are considered to be a permanent feature rather than a temporary promotion.

United Kingdom’s egg supply balance (millions)                       

January-September    

2012

2013

2014

Output for human cons.       

6,958

7,292

7,289

Of which Colony 

3,369

3,653

3,774

Free Range

3,160

3,231

3,119

Processed 

1,307

1,186

1,288

Sold in shell       

5,651

6,105

6,002

Imports*   

1,443

1,349

1,289

Exports*   

128  

263  

106

Total UK egg offtake* 

8,272

8,378

8,473

Imports as % of offtake*     

17.4 

16.1 

15.2

Egg to feed price ratio 

0.37 

0.40 

0.42

Consumption/ head/ annum (No.) 

173  

174  

175

Trade figures include estimate for September                 

* Includes products                    

 

The table above summarises some of the key egg market indicators for each of the last three years. Figures for 2014 are only available for the first three quarters, so these have been provided for each year to allow comparison between years.

Egg production has remained roughly level overall through 2013 and 2014, but some 330 m higher than in 2012 over the nine-month period, with 100 million fewer eggs sold in shell.

Imports have declined over two successive years, so that imports’ share of the home market has fallen by 2%. At the same time, a sharp drop in exports from 2013 to 2014 left more eggs on the domestic market.

Hence consumption has risen steadily from 2012 to 2014, from 173 per person per year, to 174 and then 175.

This is an encouraging trend and the industry will be hoping to build on this further in the coming year.

 

MEAT

Meat market performance

Consumption of poultrymeat in the UK eased back slightly during 2014, as the long-term growth in output stalled.

The year 2013 proved to be at least a temporary high point for overall production, with broiler output remaining level in 2014 and turkeys falling for the second consecutive year.

Figures for 2014 are only available for the first three quarters, so year-on-year comparisons in the accompanying table omit the last three months of the year.

Hence the figures in the table do not include birds finished in the three months to Christmas, which has a big impact on the turkey data, as around a third of turkeymeat is produced in that period in the UK.

Both imports and exports of poultrymeat have shown little change from 2013 to 2014.

The net result is that total offtake by the UK market of all forms of poultry was unchanged in the first three quarters of last year compared with the same period of 2012.

Falling demand

Because of the steady growth in UK population, however, the per capita consumption, on an annualised basis, has slipped back by about 0.5kg/head from 2013 to 2014.

Reasons for this disappointing result are hard to pinpoint. On the one hand, the broiler sector has had constraints on the supply side with shortages of new capacity and chick supplies.

On the other, there may be a move away from chicken to more expensive options as the economy has recovered after so many years of stringency. The strength of that argument is questionable, however, as the upturn has generally failed to benefit consumer spending, as household budgets for the majority are still under pressure.

Campylobacter may also have played a part, as the subject gained widespread publicity in the early summer, following the Food Standards Agency making it the focus of Food Safety Week. Negative publicity following The Guardian newspaper’s undercover reporting from a couple of chicken factories may also have played a part.

Positive outlook

But it is generally believed that chicken still has great potential for growth, and the steady rise in UK population (currently around 400,000 a year,  according to World Bank estimates) alone should continue to drive the sector forward.

However it is also the case that much of the current population growth is attributed to the arrival of people from eastern Europe where there is a less strong tradition for eating chicken as opposed to, say, pork.

Latest placings figures for broilers show a 1% year-on-year fall in October, so it will be into the new year before the first signs may appear that the poultrymeat industry has simply completed one of its regular pauses, before it resumes growth; or whether the expansion era has ended in the medium term.

 

United Kingdom’s poultrymeat supply balance

 Jan-Sept ‘000 tonnes   

2012

2013

2014

Poultrymeat – output   

1,191

1,233

1,224

  Imports  

355  

353  

348

  Exports   

204  

229  

233

Total UK offtake 

1,341

1,357

1,340

Imports as % of offtake      

26.5 

26.0 

26.0

Consumption/head/ annum (kg)*  

28.1 

28.2 

27.7

Broilers – output 

988  

1,043

1,044

Turkeys – output

134  

126  

115

Hens – output     

43.3 

40.8 

39.8

Ducks – output   

23.7 

22.4 

23.4

*annualised figure based on Jan-Sept