A generally positive 2017 outlook for the global poultry industry is now being challenged by a new wave of avian influenza (AI) outbreaks — a most unwelcome development in a global market that was just recovering from the negative impact of the 2015 highly pathogenic AI crisis, according to Rabobank’s “Poultry Quarterly Q4 2016” report.
New outbreaks — at just the beginning of the Northern Hemisphere winter season, when risk is usually high — certainly have the potential to shake up global market conditions in 2017 — both in meat trade and breeding stock trade, the report said. This adverse development comes at the same time as the favorable fundamentals and just as the industry has started reporting better results. The industry currently has strong market balances in most regions and ongoing low costs, despite pressure from declining red meat prices.
“The return of avian influenza is now shaking up global trade conditions and is especially affecting the outlook for Asia, Europe and Africa,” the report said. “It will also be a test for the U.S. industry after last year's multiple AI outbreaks. As many European and Asian countries are exporters of meat and breeding stock, this will certainly impact the outlook for the industry and could shake up meat and breeder trade again.”
The emergence of avian flu, as well as rising global pork and beef production, will prove challenging for the poultry industry going forward. Nonetheless, the bank said the fundamentals for the industry are “still positive, with good discipline in most markets around the world and feed prices expected to remain stable.”
According to the report, most regions in the world have seen improved industry conditions. Brazil and the U.S. have slowed production growth significantly during the second half, which has helped improve market conditions. The U.S. industry is doing well, but fast growth in beef and pork supplies has pressured the poultry market, Rabobank said.
“The next months will also be a serious test for the industry when it comes to the strength of biosecurity changes after last year's many AI cases,” the report added.
Rabobank said bird flu has become more of a business risk and recommended that companies adjust for it in their business models, which means more regional and international operations, optimal biosecurity and a very active and cooperative role of government and industry.
The report showed that the global poultry industry performed better in the second half of 2016. The Rabobank global broiler price index increased 3% in the third quarter, while feed prices dropped 5%. Conditions have deteriorated in the fourth quarter to date, but the report pointed out that lower feed prices have cushioned the impact.
Supply discipline will be key during the first half of 2017, Rabobank said, adding that the industry should not be overly optimistic based on the large red meat supplies and lower trade volumes.
According to the report, one of the big themes of 2016 was the rise of chicken concepts as a way to differentiate markets. In northwest Europe, there has been increased emphasis on animal welfare, while North America has been more focused on “antibiotic-free” and “natural” poultry.
Rabobank believes these trends will continue and spread to industries in developed countries and more affluent urban areas in developing countries.
Regarding China, the ongoing domestic supply shortage will continue to affect global market conditions. The report said China and Hong Kong's imports are expected to remain high, benefiting countries that are allowed to export directly to China, while Chinese consumers will continue to face high prices for specific preferred products such as feet and wings. The industry is working on new strategic sourcing initiatives to alleviate some of this supply pressure.
The report said, overall, challenging global trade conditions are expected to continue, with little upside for expected growth in global trade volumes.
“Global trade in poultry has been relatively slow over the past three years due to rising protectionism and disease-related trade restrictions. This made global trade in (the first half of 2016) very challenging, with too much supply in the market. It could also impact global trade conditions in 2017,” Rabobank explained.
China's import demand and the possibility of improved relations between the U.S. and Russia are promising, but lower support for the trade agreements with Pacific Rim countries and between the U.S. and Europe will have adverse impacts, Rabobank said.