RaboResearch
Food & Agribusiness far.rabobank.com
Published by the Global Animal
Protein Sector Team Lead author
Nan-Dirk Mulder Senior Analyst – Animal Protein
+31 30 712 3822
Global chicken monitor* Q1 2016-Q4f 2018
Whole chicken
Breast meat
Leg quarters
* Chicken price trend for cuts
entering global trade
1/12
September 2019
Poultry Quarterly Q4 2019
Challenging Global Supply: Rising Dark Meat Prices, Low Breast Meat Prices
Contents
Global Poultry Market Outlook Dashboard 25 South Africa 8US 9 Mexico 6 India Brazil 6 China 109 Europe 7 Japan Russia
7Thailand 8
Indonesia
10 11
Looking forward into 2H 2019, the key challenge for many in global poultry will be to
rebalance local markets. Only Brazil, Mexico and China are operating under relatively positive market conditions at present, while other markets face testing conditions. Global trade is gradually returning to high levels, driven by strong buying in Asia and Africa, with African swine fever (ASF) outbreaks in China and Vietnam being a major factor. This has resulted in relatively strong dark meat prices and an oversupply of breast meat. High breast meat
availability is placing considerable pressure on margins for industries that traditionally focus on breast meat as the profit driver, such as the US and the EU. Global oversupply supply strategy from industries in regions like requires a more restrictive ASF in the pork industry the EU, US, Indonesia and South Africa, to opportunities for poultry in affected countries. will create expansion restore market balance. These regions have all Indirectly, global traders with access to China seen overly optimistic expansion in the last and Vietnam will also benefit, especially via few years and need to rebalance supply to more dark meat exports. Rising pork prices in local market growth.
pork exporting countries will also support the poultry industry.
Global trade volumes are rising and shifting. Countries with access to China, like Brazil, Several wildcardsArgentina and Thailand, are increasingly
Besides the ASF situation, the China-US trade could impact prices in 2H. focussed on this Chinese trade, leaving room war is a major wildcard, as is the WTO for others to focus on other markets, like decision on Brazil-Indonesia trade, South Mexico, Africa and the Middle East.
Africa’s pending safeguard, and a no-deal Brexit – these could all have a big impact on global trade.
Outlook for 2H 2019/Q1 2020
US: More supply but challenging demand Brazil: Global markets key for recovery ? Ongoing production growth (+2.2%) ? Industry reduces production ? Strong dark meat, weak breast meat prices
? Improving domestic market
? Export more pressured, no China access so far ? Exports to China up, but exports to EU and Saudi still challenging EU: Gradually improving conditions
China: ASF to support local industry significantly ? Ongoing oversupply concerns in Eastern Europe
? 25% drop in pork production ? Dark meat prices improving, breast meat challenging ? Limited availability of breeding stock ? Hard Brexit could shake up intra-EU market
? Ongoing high poultry prices
RaboResearch | Poultry Quarterly Q4 2019 | September 2019
Global Poultry Market Outlook
Global poultry markets are expected to see some recovery in the coming months. However, this will be under fragile conditions (see Figure 1). Key concerns are the ongoing oversupply situations in many global
markets, like the EU, US and South Africa. Actually, only disease-affected China and Mexico, and Brazil (due to the combination of supply reduction and improved export demand), are performing relatively well. Other markets are suffering from oversupply. Therefore, more disciplined supply should be the key to returning to profitability for the global poultry industry in 2H 2019. Notable positives are the expected ASF-related strength in pork prices, and the limited feed price upside risks, given the relatively good feed grain supply position expected in Europe and Latin America. This should
compensate for more troubled supply in North America.
for global companies, as for many industries this is the profit maker. In addition to the direct trade impact, there will be indirect price support for poultry industries in countries where the pork sector has good access to China, like the EU and Brazil.
2H 2019: Market rebalance needed in many regions
The main focus for global companies should be on
restoring fundamentals through more disciplined supply growth in the coming months.
This is needed as many regions are experiencing
oversupply conditions. In South Africa, Indonesia, the EU and US, margins are under pressure as local supply of poultry is at elevated levels, while in India and Russia, industries are being challenged from a cost perspective. In South Africa, the industry is trying to rebalance via suggested import restrictions on Brazil, but will likely also need to reduce domestic supply. In Indonesia,
government intervention via culling programs is being requested. Several have been implemented, but the market balance has not yet been restored. In Russia, the industry has seen a historic 5% drop in production in recent months, driven by the ongoing impact of avian flu on breeding stock and the bankruptcy of some local companies. This resulted in some market improvement, but as capacity is now again in production, there are concerns about profitability in 2H.
The EU has also been hit by oversupply due to expansion in Eastern Europe and Spain. Recent figures show some slowdown in growth and, together with improved
demand and rising pork prices, the outlook should be for slight improvements.
ASF will have upside impact on global markets
Some market upside is expected to come from rising prices and demand substitution, given the impact of ASF on global pork markets. However, upside for the global poultry industry will be limited in the short term. China buys relatively small volumes in global markets – mainly consisting of special dark meat cuts like feet, legs and wings. Breast meat is not a preferred product in
China, and although demand for locally-produced breast meat may increase, there will be no interest in global traded breast meat as the price difference is too big. Countries with access to ASF-affected China and Vietnam will see some better prices for dark meat, but a weak global demand for breast meat remains the key concern
Figure 1: Global broiler, beef, and pork prices vs. feed cost monitor, 2013-2019f Index, Jan 2007=10025020015010050 Figure 2: Rabobank global poultry trade monitor, Q1 2011-Q2 2019 1,400Regional trade volumes (x 1,000 tonnes) 1,200 1,000 800 600 400 200 -Q1Q4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2201120122013201420152016201720182019 3,500 2,500 2,000 1,500 1,000 500 -Global trade volumes (x 1,000 metric tons) 3,000 Jul-13Jul-14Jul-15Jul-16Jul-17Jul-18Jan-13Jan-14Jan-15Jan-16Jan-17Jan-18Jan-19Jul-19Feed Price IndexPork Price IndexPoultry Price IndexBeef Price IndexJan-20Source: Bloomberg, Food and Agriculture Organization of the United Nations, national statistics, Rabobank 2019 GlobalEUBrazilThailandUSChinaSource: Bloomberg, national statistics, Rabobank 2019 2/12 RaboResearch | Poultry Quarterly Q4 2019 | September 2019
After several good years, the US poultry industry has moved into a more fragile situation, with the oversupply of breast meat resulting in low prices. While dark meat prices have been good, the profitability of the industry is being challenged, as breast meat has always been the major profit maker.
The exceptions so far are Brazil and Mexico, where the local industries have better margins. This is the result of restricted supply, which in Brazil is a result of forced reductions due to the negative market conditions last year, while in Mexico, avian influenza outbreaks have impacted supply.
pork production declining, and new demand for imports of other proteins, such as poultry. As most of these
countries restrict imports, the impact on global markets is relatively limited, except for countries with good access into Asia like Brazil and Argentina, and recently also Thailand and Russia. This also helps to explain why dark meat prices have tended to stay at relatively high levels. Some countries with limited access to China can also
benefit as trade flows shift around. This is seen in Mexico, where the US is regaining market share from Brazil, and in Southeast Asia where the US and EU are shipping big volumes.
Recovering global poultry markets with ASF support
After years of pressured volumes of traded poultry in global markets, some recovery is happening. In Q2 2019, trade volumes rose towards their record-high seasonal level of Q2 2016 (see Figure 2). Brazil has made a
remarkable comeback in global trade, benefitting from the ASF problems in China and Southeast Asia. Total exports from Brazil for the first seven months are up 3%, while value has risen 7%. Other countries benefiting from ASF-related disruption are Thailand and Argentina, both of which increased exports to China at double-digit levels.
From a demand perspective, some upside benefits will flow from the spread of ASF in Asia. China, Vietnam, the Philippines, Laos, Cambodia and Myanmar will all see
Ongoing challenging breast meat prices
On the downside, breast meat is still trading at low
prices, and industries focussed on breast meat in the EU and US are challenged by these difficult conditions, as breast meat has always been a major driver of their profitability.
The combination of oversupply and gradually changing demand towards more dark meat products (wings, deboned leg meat etc.) helps explain these low breast meat prices. In the US, recent expansion is challenging the market balance, while in the EU, recent expansions in Eastern Europe have significantly added to supply. This has accelerated, while 20 Brazilian plants have been suspended from the EU approval list. Brazilian exporters have found a way to return and volumes are rising again given low prices, which is challenging EU exporters.
Table 1: Global live broiler and feed ingredients monitor, Q1 2017-Q4 2019f
2017
EU
Live broilers
Brazil
USD/kg
China
Wheat (USD/bu)
Grains & oilseeds
Corn (USD/bu) Soymeal
(USD/metric ton)
Source: Bloomberg, Rabobank 2019
2018
Q3 1.09 0.84 1.05 424 346 318
Q1 1.14 0.75 1.22 453 366 353
Q2 1.13 0.66 1.25 499 384 371
Q3 1.14 0.77 1.29 517 353 321
Q4 1.04 0.79 1.46 512 370 309
Q1 1.01 0.79 1.33 491 373 309
2019 Q2 1.03 0.90 1.54
Q3f 1.03 0.87 1.29
Q4f 475
Change Q1-Q2 Q2-Q3 +1.1% +13.7% +9.3% -2.9% +4.6% +0.0%
+0.1% -3.9% -11.0% +0.2% -1.3% -2.3%
Q1 0.97 0.85 0.71 429 364 330
Q2 1.01 0.78 0.93 435 368 307
Q3 1.09 0.79 1.07 457 365 311
477 478 390 307
385 380 300
303
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