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Rabobank: Global poultry trade volatility to continue

Several factors have led to major movements in trade streams and prices.

According to Rabobank’s newly released report “Poultry Quarterly Q3 2018: Trade Volatility, but Local Markets Bullish,” the global poultry trade has become highly volatile, with Brazil very much at the center of the turmoil. Aside from issues surrounding the "Operation Weak Flesh" investigation and associated trade implications, the country also recently faced a major truckers’ strike, which led to a massive culling of birds.

Rabobank expects the global turmoil to continue in during the second half of 2018 as new issues are set to affect trade, such as rising U.S.-China trade tensions, the recent safeguard measures China set on Brazilian poultry and changes to Saudi Arabia’s halal stunning requirements. This could lead to further changes in global trade, along with a risk of volatility in feed costs and trade arrangements, the report noted.

“Global trade has recently become highly volatile, and we have seen some major movements in trade streams and prices due to several important factors,” said Nan-Dirk Mulder, senior analyst of animal protein at RaboResearch.

According to the report, these factors include:

  • In April, the European Union removed 20 Brazilian plants from the export allowance list due to violations of EU import requirements regarding salmonella control. This is affecting the global breast meat market heavily, as the EU is the world’s key importer of these products, and other potential buyers like the U.S. are not open to Brazilian poultry. Although the EU reduced imports by only 9% over the January-to-April period, Brazil’s were down 45%.
  • Saudi Arabia is in the process of implementing its new halal allowance standards, which already led to a drop of 30% in imports in the first quarter of 2018. Saudi Arabia is Brazil’s number-one export market and a key buyer for whole chickens.
  • China has now issued a special safeguard on imports of Brazilian poultry. This will lead to implementation of company-specific import levies and will certainly affect import volumes of Brazilian poultry in China.
  • In response to recently announced U.S. tariffs on Chinese imports, China has announced a set of retaliatory import tariffs on U.S. agricultural products, including soybeans, to be implemented in early July. “Although there is still room for negotiation, if this happens, it will also shake up global trade in the coming months, as Chinese feed prices will rise,” the report noted. As traders move to Brazil to source soybeans, Rabobank said local soybean prices will also rise, affecting the already-weak Brazilian poultry industry. Others like the U.S., the EU and Southeast Asia also may face lower feed prices.
  • Directly linked to the U.S.-China trade tensions is the introduction of a 25% tariff on U.S. chicken imports into China, further delaying the prospect of U.S. chicken accessing the market.
  • Mexico has imposed import levies on U.S. pork that will indirectly affect the North American poultry markets. Prices in Mexico for pork – and, indirectly, for chicken – will likely rise. “Aside from good performance for the Mexican chicken industry, this will also result in a more bullish market environment for imports of poultry,” Rabobank said.

Due to the ongoing trade turmoil, Brazil’s poultry exports and production are set to decline this year by 10% and 3%, respectively. Rabobank said this will lead to opportunities for alternative exporters in markets in which Brazil has to step back. In fact, the report noted that Ukraine, Russia, Poland, Thailand and Argentina are already increasing their exports, and this is set to continue in the second half of 2018.

“Many local industries are still performing well, as supply in regions like the EU, South Africa, Mexico, Indonesia and India is well-balanced, creating good, profitable conditions for the industry,” the report noted. “The EU and Mexico are further set to benefit from the recent tensions in trade, with rising local prices.”

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