Bird Flu, Expansion Could Pressure Poultry Profits

Bird Flu, Expansion Could Pressure Poultry Profits

After enjoying the strongest profit margins in a decade in 2014, U.S. poultry producers this year are finding themselves henpecked by bird flu worries, their own expansion, and price competition from pork.

But they may not need to fret too much, according to a report released Tuesday by Rabobank.

“The margin outlook for the global poultry industry remains upbeat, with continuing bullish drivers like high beef prices, lower feed costs and relatively strong demand in most regions except China,” the report noted. “… Poultry market conditions, especially in the U.S., Russia and Japan, are expected to remain bullish.”

The wild card? Avian influenza, or bird flu, which has been diagnosed in turkeys and poultry across the Midwest. The disease “is having a significant impact on the global industry and outbreaks are appearing in new regions in Europe, the U.S., and Africa,” the report said. “Export bans and exchange-rate volatility impacted global trade streams, with Brazil and Thailand as big winners in Q3 2014.”

Due to the outbreaks, places such as Mexico, Canada, and the European Union have restricted imports of American poultry. With exports currently accounting for 20% of U.S. poultry demand, those limitations are slowing things down.

“We’re starting to back up poultry also into the pipeline,” Don Roose of U.S. Commodities said on U.S. Farm Report on March 14. “We really have to increase our demand …  We sent the wrong signal last year to expand when we shouldn’t have, so we’re in a supply-bear market and we’re going to have to reach a liquidation phase.”

Analysts at Rabobank seem to see the situation differently.

As they examine last year’s profits, they assert that “returns were driven by three key factors: one, tight domestic poultry supplies; two, consumers trading down from beef and pork to chicken; and three, favorable feed cost trends” that benefited livestock producers. “Looking to 2015, we expect most of these factors to remain, given the decline in U.S. beef production expected in the coming year, coupled with soymeal cost relief this spring.”

Their big worry? Not past poultry expansion, but the level of current growth. “The biggest unknown in 2015 is industry expansion,” Rabobank said. “There is no doubt that U.S. chicken production will increase more than last year or in 2013, but how far above the 2% supply increase of the last two years is the real question.”

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