Rabobank Reports on Avian Influenza Impact On Poultry Supply Rebalancing Around World

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Excessive expansion of poultry supplies has outstripped continued strong fundamentals – robust demand, ongoing low feed prices and relatively high competitive protein prices – in recent months, after multiple quarters of balanced supply and demand, according to a recently issued Rabobank Food & Agribusiness Research and Advisory Report.

This has pressured producer profitability in most regions of the world, point out animal protein analysts at Utrecht, Holland-headquartered banking and financial services company. They add that markets in China and Thailand will likely be impacted by avian influenza (AI)-related import restrictions on breeding stock from the United States in the second half of 2016, which could potentially affect global poultry commerce.

Key fundamentals suggest a good year ahead for the industry, but whether producers can really benefit from these positive factors depends largely on supply rebalancing to new market circumstances and on further developments surrounding AI.

The threat of avian influenza remains a real “wild card” which has the potential to impact supply, trade and consumer demand. Well-balanced markets will better protect the industry for a potential negative impact of AI outbreaks (like trade restrictions), and they provide the industry with more pricing power to achieve better margins.

Key fundamentals for the global poultry outlook for next year are positive. Feed prices are expected to remain low, while competitive protein costs for beef and pork will be relatively high. This provides chicken with a potentially significant price advantage, especially with a weaker macroeconomic outlook. Under these conditions, demand for chicken is usually strong, as consumers tend to trade down to cheaper proteins.

The extent to which the global poultry industry will benefit from these positive factors very much depends on balancing supply and demand. After a relatively long bullish period, many global markets have entered a period of oversupply at the end of 2015 and this needs to be solved in the next months in order to make the industry profitable again.  

Dealing with an ongoing threat of avian influenza will be a major challenge in 2016, and it will require further investments in biosecurity, improved industry structures and business models. Joint approaches between industry and governments are particularly important in this regard.