The overriding factor driving profitability in the poultry sector is the interaction between feed prices and sale values.
Sliding cereals markets since harvest 2014 will have benefited many producers, although more recently spot prices have jumped. Locking in a proportion of costs by forward buying is, therefore, a sensible business strategy, says Andersons director Greg Ricketts.
“Egg prices generally followed a downward trend through 2014, but in recent months there has been a relative shortage of free-range eggs, which has helped to keep prices slightly firmer in this sector,” he says.
“However, the number of laying chicks being placed – and the number of eggs being set for future placings – was high during the late summer and autumn, which suggests increased output into 2015.”
The UK broiler market has, in some ways, benefited from the economic downturn, says Mr Ricketts.
“Cheaper chickenmeat has gained market share at the expense of lamb, beef and, to a certain extent, pork.” The high broiler production of 2014 could therefore continue throughout 2015.
“The poultry sector is controlled by large processors and packers, but we are seeing quite a positive attitude to investment,” he adds.
“There’s a lot of infrastructure that’s reaching its sell-by date, and although margins are always tight there is long-term positivity out there.”
Unfortunately, price pressure in 2015 looks inevitable. “Retail price wars may see purchasers drive an ever-harder bargain in contract negotiations,” says Mr Ricketts.
“This will pass down the supply chain, especially as production costs are lower than a year ago. The poultry sector may face a testing 2015, but good producers will continue to make a return,” he adds.
- Price pressure from retailers looks inevitable
- Good demand for free-range eggs and chickenmeat
- Continued investment in biomass likely
- Forward buy some feed to manage the risk
- Understand impact of changing feed costs on margins
- Consider long-term investment in infrastructure