In the poultry sector, all eyes are on the possible return of avian influenza this fall and winter, with the virus expected to be present, to at least some degree, in all major flyways in the U.S., said Mark Jordan director of poultry and egg services for Informa Economics.
Speaking at Informa Economic’s Commodity and Feed Ingredient Outlook Symposium in Bloomington, Minn., Jordan said he believes that the U.S. Department of Agriculture is probably a bit high in its expectation of up to 500 new AI cases this fall and winter, particularly given that there were slightly fewer than half that during the first half of 2015.
While the evidence suggests broilers may be less susceptible to contracting AI due to shorter life cycle and genetic factors, Jordan noted that the risk to all sectors is almost impossible to quantify right now. Roughly 40 million hens and pullets were lost in the table egg sector and nearly 8 million turkeys succumbed to AI during the initial wave of the outbreak. Those numbers only reflect direct losses. Total losses in the turkey sector, when extra down time and reductions in the breeding flock are considered, could be as high as 20 million birds already, he said.
AI’s impact on broiler sector has been negligible with regard to production capabilities, but the export market has been slammed by various trade restrictions put in place in response to the virus. The export program has been under additional pressure from Russia, which has completely shut out U.S. poultry meat since last August and has a full ban in effect through February 2016.
Turkey exports have been hit hardest by AI-related trade restrictions, with year-to-date shipments down 21% from 2014’s pace. That compares to an 8.7% decline in U.S. broiler meat exports. Ready-to-cook (RTC) broiler production expanded 4.3% from year-ago levels during first half of 2015, and even bigger gains are possible during the second half, but hatchery output is languishing, said Jordan. Egg sets are running 3%-4% below potential, due to a surge in exports of hatching eggs and processors in the table egg sector aggressively sourcing fertilized eggs as well, he noted.
Jordan said the diversion of eggs into the export and breaking channels shouldn’t last too much longer, and once the situation normalizes, there should be a tidal wave of broiler chicks entering the supply chain. Pullet chick placements in broiler-type hatching flocks, at 44.4 million during the first half of 2015, were 5.9% larger than a year earlier, helping support layer inventory levels in the coming months, he said.
Following a projected 5.3% increase this year, RTC broiler meat output is expected to rise another 5.2% in 2016. Jordan said that would mark the first back-to-back annual increase of at least 5.0% since 1993-94. Chicken companies are looking at softer demand, cheaper prices for end products, and eroding margins heading into 2016. Expansion next year will be heavily front loaded as increasingly weak fundamentals point to a slowdown in broiler industry growth by next fall, predicted Jordan.
In 2016, the broiler sector also will see some new capacity coming online. Peco Foods in Arkansas and Sanderson Farms in North Carolina both are growing.
Some turkey producers are in still in the midst of a massive and costly cleanup and recovery effort from AI, although those who came away unscathed by the virus are enjoying a windfall. There are massive incentives for turkey producers to ramp up output, although it will not be a timely effort, said Jordan. He said it could be at least another 6-9 months before RTC turkey production growth is back running at pre-outbreak levels.
A big concern for the turkey industry is a possible collapse in demand down the road as end users consistently burned by commitment shortfalls start looking at alternatives. Demand concerns abound for both chicken and turkey with pork -- and eventually beef -- becoming more widely available again, Jordan said.
Animal welfare concerns remain front-and-center, although it is the table egg sector that seems to get the most scrutiny on this front with regard to cage-space issues. Calls are growing for “socially responsible/conscious” practices throughout animal agriculture. One key issue going forward will be the push for antibiotic-free poultry, said Jordan. Informa estimates up to 25% of broiler production is already ABF (with regard to antibiotics tied to human health). However, the share of production that is completely antibiotic-free is much smaller, likely less than 5%. End users will need to take a serious look at the possible consequences of full-ABF before pushing that issue any further. Interest is also growing in broilers fed “all-veg” diets, and the current share of output meeting this definition is likely around 10%-15%, said Jordan.