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Outlook for global poultry in 2020

Source:Rabobank

Date Published:3/23/2020 01:03:07 PM

As with other industries, coronavirus brings uncertainty to the poultry market; Avian flu, and African swine fever also impact production and trade.  

Global poultry and pork are not being spared by the spread of coronavirus. On top of and previous to this pandemic, the African swine fever (ASF) has already been challenging producers of pork in Asia. In the coming months, expect two developments: first, a decline in pork production, and second, a boost for poultry, that is if supply chain challenges can be overcome, says Rabobank analysts in their assessment of the poultry industry for Q2.

“In terms of markets, we expect more at-home poultry consumption and higher sales of non-perishable poultry products. Labour availability and logistics issues, such as those impacting distribution, will likely affect supply in the coming months. Coronavirus will also affect the global supply of poultry inputs (like feed additives and animal health products), due to disruptions at Chinese and other suppliers,” explains to Nan-Dirk Mulder, Senior Global Specialist – Animal Protein.

In their Q1 report, Rabobank summarises its industry outlook:

-Poultry is generally the least-impacted protein in a global economic slowdown, due to its price competitiveness. 

- Consumer behaviour will shift towards more at-home consumption, impacting poultry demand in some markets like China and the US, where poultry has a relatively large share of foodservice demand. So, companies with good access to food retail will benefit, while foodservice suppliers are impacted. The shift towards more home delivery could receive an additional push, with this industry capturing market share in poultry and meat distribution. 

-Product demand in food retail will increasingly move from fresh to non-perishable products, like frozen poultry, canned products, and shelf-stable products. 

- As many wet markets are closed due to coronavirus, suppliers to these markets, like yellow chicken and traditional breeds, will be most affected. Wet markets are typically the main outlet for these products, for example in China. If coronavirus moves into Southeast Asia, it could also affect these traditional species, as wet markets represent 50% to 90% of poultry sales. 

- The complex situation in China in January and February, which resulted in a sharp decline in poultry production, will affect global markets until May or June. Local producers need to rebuild supply, and markets need to rebuild demand and prices, which will also push up imports. Trade volumes will rise again when port logistics are back to normal. 

- The drop in poultry production in China will be bearish for grain and oilseed prices in the next months, but prices will recover when China’s production picks up again later in Q2 and 2H. This might partially offset the bullish prices we see for some feed additives. 

- Companies in countries that are heavily affected by coronavirus might also face some supply volatility, especially if governments impose strict quarantine and labor-force restrictions or if the labor force is affected by coronavirus cases. The situation in China could, however, highlight the importance of making exceptions for the food industry.

 - Global trade will face even more volatility this year, with both destinations and origins affected, as well as pricing. Total volumes are likely to be affected temporarily, and trade should ultimately benefit from local supply issues related to coronavirus, ASF, and Avian flu (AI). The biggest coronavirus-related issues will be potential shocks in supply and demand driven by quarantine and logistics issues and temporary changes in consumer demand towards at-home consumption, nonperishable products, etc. As this could impact supply and demand, it has the potential to also impact global poultry markets and pricing.

- Global trade in breeding stock will also be affected, especially as many commercial flights have been cancelled. This will affect the distribution of hatching eggs and DOC to global markets and could impact local supply chains in importing countries for quite a significant time, especially if parent stock or grandparent stock is involved. 

- In China, coronavirus has also disrupted farm input supply, locally as well as globally, as some major Chinese chemical plants have been closed. This is impacting prices for some Chinese-produced animal health products and feed additives. Prices for threonine, lysine, and vitamin E and, to a lesser extent, methionine, vitamin A, and vitamin D3 have increased sharply in Q1. The price hike on these products, and indirectly on prices for concentrates, premixes, and complete feed, is expected to run for the coming months. 

Ongoing Disease-Related Volatility Ongoing disease pressures remain a major factor driving the outlook. The ongoing challenge of ASF, which is expected to see China’s pork production decline by 15% to 20% in 2020 following a decline of 22% in 2019, is the biggest issue. Under normal circumstances, this would mean a further significant expansion of poultry production in China, by 15% to 20% YOY, but this will be delayed by the impacts of coronavirus.  Other countries in Asia, such as Vietnam and the Philippines, are expecting declines of 20% and 10% in pork production this year due to ASF. Chicken production in these countries has jumped in response, with big local poultry producers, pork companies entering the chicken industry, and hog farmers turning to chicken all ramping up production. As this can be fast, it has led to oversupply, for example in Vietnam where prices tumbled to record lows. Large poultry imports earlier in 2019 worsened this situation. Global poultry markets are currently affected by a new wave of AI outbreaks, which typically spreads in the Northern Hemisphere winter. Eastern Europe has been most affected, especially Poland and also Romania, Slovakia, the Czech Republic, Hungary, and Ukraine. As Poland and Ukraine are major global traders, it also affects global markets. In Poland, the industry can refocus trade towards the big intra-EU market. For Ukraine, the many AI-related trade restrictions can only be offset by increasing sales in the local market or by reducing production until trade is restored.  Asian markets, like China, Taiwan, and Vietnam, and Saudi Arabia have been hit by AI outbreaks. This will impact local market conditions, especially due to the impact of culling, but the trade impact is more limited.

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