industry news - SAPA

INTERNATIONAL NEWS
Any chicken company which is currently unhedged on grain in
the US is losing a substantial amount of money very quickly.
Anecdotal information suggests that many small and medium
sized companies are unhedged. The largest firms tend to be
hedged. As a result there will be a considerable amount of
financial stress on small US companies this year. In the rest of
the world, results vary by country but the overall situation is one
of stressful grain prices causing financial difficulties for chicken
companies. However, the news is not all bad. The good news is
that prices of competing meats are high around the world and
are expected to go even higher. In the US, beef prices are up
20% and pork is up 30% from levels a year ago. These higher
prices will help to pull chicken closer to profitable levels. In
addition, due to the poor feed conversion of (feedlot) beef and
pork, prices of those competing meats will trend upward at a
faster rate than chicken in the next 12 months. These higher
prices for competing meat should help increase the price of
chicken to profitable levels. However, in some countries like the
US, a temporary cutback in chicken production may be required
to return the industry to profitability.
This month the government of Mexico started an investigation
into claims that the US was dumping leg quarters into Mexico.
Mexico was the largest market for US leg quarter last year when
Russia banned US imports for 10 months and then cut import
quotas by half. China is still severely restricting chicken
exported by the US. Russia, Mexico and China represented the
three largest markets for US leg quarters. Leg quarter prices
started 2011 at the same level as last year. However, last year
at this time, exports to Russia had halted completely. This year,
exports are flowing to Russia (although at a slower pace than in
earlier years). With at least some product flowing to Russia,
Mexico still open for the moment, and world demand in general
improving, leg quarter prices should be higher than last year. In
addition, at some point during the year, production cut-backs in
the US will restrict the supply of leg quarters leading to even
higher prices. The high price of competing meats also helps.
Leg quarter prices should end the year at 45 cents per pound
($1 per kilo) versus 35 cents ($0.77 per kilo) last year.
Increased chicken production late last year in the US brought
DBB prices down to highly unprofitable levels. Nevertheless, in
the spring, seasonal demand will increase and supply will
inevitably moderate leading to higher prices. DBB prices
bottomed out at $1.10 ($2.40 per kilo) and will rise with
production cutbacks as well as the high price of competing
meats. It would not be surprising to see DBB at nearly $2 per
pound later in the year ($4.40 per kilo).
45 | MARCH 2011 PLUIMVEE POULTRY BULLETIN
In 2010, the world chicken industry grew by 3.3%. With the
spike in grain prices, the 2011 increase may slow to 2.2%. By
2012, grain prices could be falling, the world economy will be
picking up steam and it could be a time of increasingly profitable
chicken production. The last several years have been marked by
erratic growth to say the least but the trend is up from 2009.
In 2010 the US chicken industry increased production at a rate
of 4%. In 2011, production increases will slow with the
headwinds of the perfect grain storm. However, thanks to the
good feed conversion of chicken and high competing meat
prices, the overall trend line of chicken production increases
from 2008 to 2012 with two notable dips in 2009 and 2011.
US red meat production has been dropping since 2008 partly
due to the recession and partly due to high grain prices. Due to
the importance of feed conversion, persistent high grain prices
will force red meat production to fall despite relatively high meat
prices and the upturn in the economy.
Paul Aho Ph.D is an international agribusiness economist
specialising in projects related to the poultry industry and has
been a prolific writer in trade journals in both the United States
and in Latin America. Dr. Aho now operates his own consulting
company called “Poultry Perspective”. In this role he works
around the world with poultry managers and government policy
makers. E-mail: PaulAho@PaulAho.com.This article is an edited
extract from the February issue of Aviagen's Broiler Economics,
kindly supplied by Stanley Millar, Commercial Manager of Arbor
Acres - Middle East and Africa.