As the U.S. is moving from a turbulent 2016 into a new year with an uncertain political outlook, it is important for the poultry industry to understand the various scenarios that may unfold in the near future and possible changes in global trade agreements, currency exchange rates, regulations and the overall cost of production. Using insights from industry experts within the Nutriad group and input from external consultants, the multinational feed additives producer reviews several possible scenarios and shares its vision of the year ahead.

Poultry market and forecast

Broiler production and turkey production both were short in the last quarter of 2016. Broiler production is expected to increase in the first quarter of 2017. The U.S. Department of Agriculture's forecasts for 2017 prices were increased slightly for broilers and were lowered for turkeys.

As of January 2017, broilers had a slight increase in price, reaching 87 cents/lb., with a forecast for the year of 80-86 cents/lb. for the whole bird.

The turkey production is estimated to have an increase of 245 million lb. on year-ending stock versus previous expectations. This leads to an expected increase in year-ending stocks for 2017 to 275 million lb.

In the egg market, prices are maintained to a level of 73-76 cents/doz. after a common drop in the couple of weeks following the holidays. With more than 307 million hens in production and a record number of 100 eggs produced per hen, it should maintain high stock level on dried egg and frozen egg products. Expectations for the first quarter are in the range of 78-82 cents/doz.

Overall, the poultry market should have a positive year, with steady prices and maintained or slightly reduced feed costs.

Grady Fain, senior vice president for Nutriad in the U.S., said, “Nutriad is confident about the 2017 outlook for the poultry industry in the U.S. Through the market ups and downs, Nutriad will continue to working with customers across the country to deliver additive solutions that positively impact their bottom line."

Political scenario

The election of President Donald Trump will most certainly bring changes in the overall trade and currency panorama. The outlines of some of those changes can already be seen in his first days in office. The U.S. withdrawal from Trans-Pacific Partnership (TPP) will leave a vacuum to be filled by China, giving it greater importance in Asia and the Pacific Rim. However, the U.S. may establish bilateral trade deals with Philippines, Malaysia, Indonesia and Thailand.

According to USDA, close to 18% of the total poultry production in U.S. is exported. This is what makes the U.S. poultry industry extremely sensitive to currency fluctuations, trade negotiations and economic growth in importing markets.

The renegotiation of the North American Free Trade Agreement (NAFTA) can also disturb current trades with Mexico and Canada, and the threat to overtax Mexican products in 20% might have a direct effect on bilateral trade. In 2015 Mexico's poultry imports from U.S. --- not counting eggs -- reached more than $1 billion.

The devaluation of the Mexican peso versus the U.S. dollar might favor Mexico's imports from South American countries such as Argentina, Chile and Brazil over the U.S. In January 2017, the value of the peso fell almost 20% compared to January 2016.

Regulations and welfare

The appointment of Scott Pruitt as head of the Environmental Protection Agency and possible increased industry-focused policies, including easing regulations imposed by the past government, might have a positive impact on poultry producers. However, consumer-driven demands are still influencing the way retailers and fast-food chains select their suppliers.

The enigma currently faced by producers is to decide which aspects of welfare should be followed. The reduction in density, having smaller-scale operations and using non-biotech ingredients will demand a greater need for land and resources, consequently negatively affecting industry sustainability.

The new Veterinary Feed Directive might also have an impact on operation procedures and costs as companies adjust to the withdrawal of antibiotic growth promoters and adapt to natural alternatives.

Sanitary barriers and avian influenza

Avian influenza (AI) outbreaks throughout the Asian countries and the European Union will play an important role in the U.S. poultry trade. According to USDA, the egg export forecast has increased in 30 million doz. eggs following an AI outbreak in South Korea.

The dissemination of recombinant highly pathogenic AI strains by migratory birds will alter trade patterns that affect the outlook for Asia, Europe and Africa. Even with strains such as H5N8 possibly being eradicated in the EU and H5N6 being controlled in a few more months in South Korea and Japan, there will be potential re-introduction of other strains.

The dissemination of AI, and its endemic situation in wild birds, can have a long-term impact on global market conditions. AI creates business risks to companies, which then must adjust their business model, paying high attention to biosecurity and close involvement with local government.

Commodities

The 2016 harvest is projected to break records in yield and total production, according to USDA's "World Agricultural Supply & Demand Estimates" report.

In the U.S., the average corn yield of 11,000 metric tons per hectare (175.3 bu. per acre) on about 35.1 million hectares (86.8 million acres) harvested will translate into an estimated crop of 386.8 mmt (15,226 million bu.), which would be the largest U.S. corn crop on record.

Argentina and Brazil also are following a strong trend and should reach record numbers in corn production due the prospect of favorable returns and good weather conditions. Brazil is estimating a harvest of 215 million tons of grains, with more than 108 million tons of that for soybeans, which means an 8.7% increase in production compared to last year. Argentina, even with recent reports of floods, is estimating 36 million tons of corn and 55 million tons of soybeans.

The elevated production numbers, combined with China’s high stocks, will pressure commodity prices in the national and global markets. Overall prices should be maintained at close to the current $3.58/bu. for corn and $10.32/bu. for soybeans.

Nutriad delivers products and services to more than 80 countries through a network of sales offices and distributors. These are supported by four application laboratories and five manufacturing facilities on three continents.