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07

2022

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07

Poultry Quarterly Q3 2022: Bullish Outlook With Strong Demand and Big Operational Challenges

Source:

Rabobank

The outlook for the global poultry industry for 2H 2022 is bullish, despite significant cost pressures and other operational challenges. Demand is strong, with most countries open after adopting “living with Covid” strategies. This is pushing up poultry demand, while global pressure on spending power and high food prices are also leading consumers toward the lowest-priced meat protein: poultry.

The outlook for the global poultry industry for 2H 2022 is bullish, despite significant cost pressures and other operational challenges. Demand is strong, with most countries open after adopting “living with Covid” strategies. This is pushing up poultry demand, while global pressure on spending power and high food prices are also leading consumers toward the lowest-priced meat protein: poultry.

 

The biggest challenge for the industry is on the operational side. Feed and energy prices are higher than they have been in many years and are expected to stay high into 2023. In addition to lingering Covid-19 impacts, the industry currently faces one of the highest-pressure avian flu seasons in history. The Ukraine crisis directly affects global feed commodity, energy, and fertilizer prices, further challenging industry operations in 2H 2022.

 

One consequence of this challenging context is that supply will be tight. Mid-sized and small producers are downscaling in response to higher working capital requirements and risks. New investment projects have been delayed, given the rise in investment costs, with high steel prices, rising interest rates, high logistical costs, and a tight labor supply. Genetics supply has tightened following Covid-19-related downscaling. In Asia, African swine fever (ASF) has also had a big impact on the local meat supply, with Thailand and the Philippines especially affected and facing tight local meat supply conditions.

 

In this challenging market context, the differences between winners and losers will be significant. Companies with strong market power, strong biosecurity, and strong operations–with high efficiency and solid procurement–will likely outpace the market. Traders are expected to benefit, as global trade volumes will rise, with leading countries and companies that do not face AI restrictions also benefiting.

 

Rabobank’s quarterly poultry report this week note that China's poultry industry, hampered by COVID-19 restrictions, is beginning to recover from a period of sluggish revenue and expenditure.

 

According to the report, white broiler prices have risen steadily since the middle of Q2 2022, and this momentum is expected to continue throughout the second half of the year if the COVID-19 pandemic restrictions continue to ease. Chinese poultry in 2022 is hampered by rising soybean prices (up as much as 20% YoY) and the shortage of available truck drivers, partly due to the COVID-19 pandemic. The report also highlighted below-normal overall poultry consumption and weak foodservice and institutional purchasing due to the pandemic, but strong growth in retail demand.

 

Trade Situation

In the first half of 2022, China’s poultry products imports fell by nearly 10%, but its exports increased by 27%. Rabobank expects imports to be supported by rising local prices in the second half of the year, but poultry products will face uncertainty over policy changes related to HPAI situation in the United States. The growth in exports is an example of how China's poultry exports have benefited from tight supplies in the global poultry market. In April alone, China's poultry exports increased by 35% compared to April 2021.

 

Stricter Farm Inspections

As China pays more attention to environmental and sustainable development efforts, many local governments have stepped up inspections of livestock and poultry farms on environmental issues such as wastewater management. As a result, many farms are likely to close or relocate. Industry challenges related to the environment are expected to persist in the long term.