Excessive supply expansion has outstripped continued strong fundamentals—robust demand, ongoing low feed prices and relatively high competitive protein prices—in recent months, after multiple quarters of balanced supply/demand. This is pressuring producer profitability in most regions of the world and global chicken meat prices have dropped significantly, says the Rabobank Poultry Quarterly Q4.
Key for the industry’s 2016 outlook is a rebalancing of supply to new market conditions. An improved market balance will also protect the industry better against potential negative market affects from increased avian influenza (AI) risk in Northern Hemisphere during coming winter months.
The threat of AI remains a real ‘wild card’ which has the potential to impact supply, trade and consumer demand. 2016 H2 market conditions will be affected by AI-related import restrictions on breeding stock in countries like China and Thailand from the US and Europe, which will lead to lower production in these countries, which are expected to affect potentially global poultry markets.
Well-balanced markets will better protect the industry for a potential negative impact of AI outbreaks (like trade restrictions), and they provide the industry with more pricing power to achieve better margins.
Key fundamentals for the global poultry outlook for next year are positive. Feed prices are expected to remain low, while competitive protein prices for beef and pork will be relatively high. This provides chicken with a potentially significant price advantage, especially with a weaker macroeconomic outlook. Under these conditions, demand for chicken is usually strong, as consumers tend to trade down to cheaper proteins.
Nan-Dirk Mulder, Rabobank Analyst says: “The extent to which the global poultry industry will benefit from these positive fundamentals very much depends on balancing supply and demand. After a relatively long bullish market situation, many global markets have entered a period of oversupply at the end of 2015 with falling chicken prices and this needs to be solved in the next months in order to make the industry profitable again.”
Dealing with an ongoing threat of avian influenza will be a major challenge in 2016, and it will require further investments in biosecurity, improved industry structures and business models. Joint approaches between industry and governments are particularly important in this regard and as AI has become a clear global topic, the industry needs address the key challenges much more from a global perspective.
