Pressure on producer profits as poultrymeat sees oversupply

Global poultrymeat supplies have grown too fast in recent months, despite continued strong demand, putting pressure on producer profits in most parts of the world.

This more bearish scenario follows multiple quarters in which the poultry market has been well balanced and producers have been able to reap the benefits of lower feed costs.

According to analyst Rabobank in its latest quarterly report, the poultry sector has had “too much of a good thing”.

See also: Low prices here to stay, broiler growers warned

“Most markets worldwide have turned into an oversupply situation in the second half of 2015, due to all too rapid expansion under the bullish market circumstances of the first half of the year.”

Markets such as the US, China and India have all produced surpluses, while increased output in Poland, Hungary and Spain has started to affect margins in Europe, compounded by the loss of 100,000t of exports to Russia.

Global trade volumes have been increasing seasonally of late, though have not yet reached the record levels of 2014, primarily due to restrictions imposed on places like the EU and US following avian influenza outbreaks.

“This has resulted in sharp drops in prices for legs (-19%), whole birds (-9%) and breast meat (-7%),” says Rabobank.

“As long as restrictions exist on trade from these countries, and as long as the industry is dealing with oversupply, prices will remain low.”

Strong fundamentals

Despite all this, Rabobank insists the outlook for 2016 remains positive. “Feed prices are expected to remain low, while prices for competing proteins, beef and pork, will be relatively high.”

But is essential countries reassert supply discipline in order to reap the rewards.

Signs are that US producers are doing just that.

Having seen chicken prices drop by 30% in six months, taking many into the red, Rabobank reports some producers are now breaking fertile eggs to tighten the market.

“This is clearest in the drop-off in the ratio of eggs set to chick placements, which now sits at 81.7%.”

Avian influenza remains a constant threat, especially in Europe, where a recent outbreak in south-west France has highlighted the risk.

The European poultry market may also be challenged in 2016 by lower pork prices as a result of overcapacity, says the report.

But the poultry sector could also benefit from the trend at retail for higher welfare chicken, which could generate additional profit for some producers.