Mexico-Poultry industry in depth.

MEXICO - A USDA OVERVEIW ON POULTRY INDUSTRY.

Mexico’s poultry production is forecast to decline slightly in MY 2009 (January-December), due to higher production costs created by the devaluation of the peso, according to the USDA’s Foreign Agricultural Service (FAS) in their GAIN report. Consumption, however, is expected to increase slightly in MY 2009 as consumers favor lower priced poultry meat over other high priced meats. MY 2009 imports are also expected to increase, as imported poultry products for further processing are forecast to increase in response to a growing demand for cheaper processed poultry products.

Production

Mexican chicken meat production was forecast to decrease in MY 2009 (January-December) by 0.3 per cent due to the stabilization of Mexican production after overproduction in MY 2008. The number one factor affecting chicken production in Mexico is the exchange rate. While world grain prices have generally declined since summer 2008, the cost of production for Mexican producers has failed to follow due to the concurrent devaluation of the peso keeping dollarbased grain prices relatively high. Today in Mexico, 65 per cent of the total cost of poultry production is linked to dollar-based inputs. For example, the Mexican Poultry Producers Association (UNA) estimates that for every 1,000 pesos/ton ($68.44/ton)1 increase in coarse grains prices, poultry prices increase by about 2 pesos/kg ($0.14/kg).

The MY 2008 production estimate was revised down 0.7 per cent based on final industry data but remains one percent higher than MY 2007. In 2008, high grain prices caused higher prices for chicken meat (highest in April and May), thus consumer demand decreased. This forced producers to initially raise birds to a higher slaughter weight. However to compensate for higher weighted birds producers moved to depopulate flocks. Thus, during August and September within the Mexico City metropolitan area producers began offering chicken breast, as well as legs and thighs, at lower prices.

Poultry producers continue to be major users of imported feedstuffs from the United States. Mexico, a grain deficient country, lacks sufficient supplies to cover domestic demand. Furthermore, imported yellow corn contains superior nutritional values and produces a more favorably colored meat for consumers. According to the UNA, feed consumption for chicken meat production in MY 2008 was 7.5 MMT, (4.7 MMT of feed grains, 1.5 MMT of oilseeds and protein meals, and 1.3 MMT of other raw materials). UNA’s total estimate of feed consumption increased only 1.14 per cent from MY 2007 (January-December).

Consolidation with the Mexican industry is expected to continue. Medium-size companies will likely continue to merge into cooperatives and associations, with smaller players becoming contract producers. However, investment in additional infrastructure could be postponed until the effects of the economic crisis become more certain. Furthermore, the marketing and promotion of poultry meat is expected to slightly decrease, while current investigation and research on egg, chicken and turkey is expected to continue.

Consumption

The consumption estimate for MY 2009 was revised downward to 3.24 MMT. In spite of the financial crisis, chicken producers continue to enjoy similar demand for their products, and poultry consumption will remain steady due to the affordability of chicken relative to other meats. Moreover, increased usage in processed food products, along with improved product quality, will continue to support poultry consumption. For 2009, the exchange rate’s impact on production cost, and therefore consumer prices, could result in lower demand for broiler chicken.

Consumption for MY 2008 was revised downward 3.23 MMT. For most of 2008, poultry producers paid higher grain prices and thus, demand decreased due to higher chicken meat prices. Consumption for MY 2007 was revised downward as result of slower imports and higher export data.

The past year was a very volatile year for poultry prices. For the first half of the year consumer prices for chicken leg quarters (CLQs) were significantly higher compared to prices registered in 2007. However, prices fell throughout the year primarily because of the overproduction and, despite all the price volatility, CLQs eventually registered a small decrease in average yearly price from 22.49 pesos/kg (US$1.54/kg) to 22.43 pesos/kg (US$1.53/kg). The average broiler price for 2008 was 23.08 pesos/kg (US$1.58/kg) which was 5.8 per cent lower than in 2007.

Trade

The forecast for imports of chicken cuts, mainly CLQs and mechanically separated chicken, for MY 2009 was revised higher over the previous estimate. The meat processing industry expects to import more raw materials such as mechanically separated chicken and turkey meat due to higher demand for cheaper meat inputs for the production of such items as mortadella, sausage, pastry or hams. These lower priced products maybe the only source of protein for medium and low income consumers who have been affected by the financial crisis. Imports of chicken meat for MY 2008 were revised upward from previous estimates, also due to increased demand from the processing industry.

Another important factor behind the increased estimate for imports is the elimination of the quarantine for products from the state of Arkansas. Mexico imposed an import ban from the state due to an outbreak of low-pathogenic avian influenza (LPAI) in July 2008. As of 10 October 2008, Mexico lifted the import quarantine for all products from the state.

The United States is the main supplier of chicken meat to Mexico. However, imports from Chile of mechanically frozen deboned chicken meat represented 13.8 per cent of total Mexican imports in the first 10 months of 2008. This is due in part to changing disease conditions within North America which are causing importers to diversify their suppliers.

The top three products imported by Mexico are fresh or chilled mechanically deboned chicken meat, fresh and chilled turkey parts, and frozen chicken leg quarters. Although, imports of poultry products has been increasingly diversified. Recently, Mexican poultry producers have seen higher imports of chicken breasts principally for the self-service supermarkets. Supermarkets import a higher quantity of cuts when prices in the US are cheaper than in the domestic market, as we can now see with some cuts (i.e., thighs, leg quarters and drumsticks2).

Exports of Mexican chicken meat have increased slowly. Exports consist of value added products such as ready to eat products (RTE) produced from US raw materials. According to UNA one of the principal problems is the restrictions created by the lack of recognition of disease free areas in Mexico by USDA. The Mexican industry has been working with USDA, USAPEEC (USA Poultry and Egg Export Council) and SAGARPA in order to obtain the recognition of Newcastle-free status in Nayarit, Baja California, Chihuahua, Coahuila, Durango y Nuevo Leon, as well as to obtain an USDA/FSIS approved establishment for the export of Mexican-origin poultry products to the United States. In addition, UNA has sought the increase of export quotas to the European Union.

Policy

Domestic poultry producers have faced a difficult years beginning with increased grain prices and then ending with the peso devaluation. The rapid increase in grain prices forced many producers to liquidate future grain contacts for a loss. They continued to suffer losses when it was necessary to purchase grains on the international market at higher rates because of the peso devaluation. In response, the Mexican Secretariat of Agriculture (SAGARPA) announced a series of government support programs intended to help the livestock sector cope with high international corn prices. The "Extraordinary Program" establishes that under the "Forward Con