26 Oct 2020

The challenge of balancing volatile markets

The global poultry industry is facing turbulent times. Major cause is the Covid-19 pandemic. But also foreign exchange rates and African Swine Fever in Asia seriously impact global production and trade. The challenge is to balancing production in these volatile markets, according to Nan-Dirk Mulder of Rabobank.

 

By Ad Bal

 

“We are facing unprecedented volatility in the poultry business worldwide”, says Nan-Dirk Mulder, senior global animal protein specialist of Rabobank. Mulder refers to the Poultry Quarterly Q4 of Rabobank which was launched recently.

“With no doubt, the clear cause is the Covid-19 pandemic which heavily attacks the world community”, he continues. “This strongly influences consumer markets, due to restrictions on people movements like lockdowns. These highly impact “out-of-home” poultry consumption. Furthermore, economies worldwide have moved into a deep recession, which impacts consumer purchasing power. The impact of the current and possible new waves of Covid-19 will make markets more volatile and price driven. This is unpredictable however. Only a while ago, prices went down up to 9 percent, whereas shortly thereafter they went up 3 to 4 percent again. New waves could again shake up market conditions.

But not just this, also the African Swine Fever outbreak in Asia and foreign exchange rates have a substantial impact on the global poultry market. Apart from the traditional “wet markets” in most markets worldwide,  there’s a strong shift from foodservice/restaurants to retail markets. After all, consumers hardly or don’t go out for dinner in a restaurant. In the EU alone, sales to foodservice markets declined with by around 50 percent. In other markets like US and China we have seen similar drops. Also, collapse of tourism across the world in the past months, heavily impacted the foodservice segment. “

Restricted supply strategy

“Overall consumption of chicken in the EU declined with by around 5 percent. Cold stores in the EU are fully stocked. Consequently, chick placements will permanently have to be adjusted. Of course this is common use, but particularly because of Covid-19, it is even more important.  In this volatile and price driven market, a restricted supply strategy is important to keep markets balanced. We will for sure be facing this situation as long as the pandemic will last. “

“Many poultry products on the foodservice side, originate from imported poultry. Consequently, exporting countries are even more hit by the situation, than those countries with a high self-sufficiency rate”, according to Mulder.

“On top of this, the African Swine Fever (ASF) pandemic which started in China, also changed the global trade landscape. Particularly China, Vietnam and the Philippines were and are still severely hit by ASF. These countries have a strong tradition in pork on the menu. However, because of the culling of a major share of the pig herd in these countries, they started importing pork. This situation created additional opportunities for pork exporting countries like from the EU. Even complete carcasses are being shipped to China in order to meet the demand for pork in this country. “

Poultry alternative

“On the other hand, poultry is a good alternative as a replacement for pork”, says Mulder. “Again, by far the biggest market is China. This opened up a compensatory market for major poultry exporting countries like USA, Brazil and “runner up” Russia! Currently, poultry shipments are even taken by refrigerated train cargo from Russia to China.

Meanwhile, China is expanding domestic poultry production as well. An expected increase of 12 percent will be realized this year, while pig herds have started to rebuild.”

Mulder expects the pig sector to have been recovered from the ASF pandemic in about 4 to 5 years. He does not expect consumer preferences to permanently have been shifted from pork to white meat like poultry. As a result, an oversupply of poultry in China is to be expected in the coming years.

“Eventually this will significantly impact global trade in both pork and poultry”, Nan-Dirk Mulder concludes. “Key challenge for producers under volatile market conditions is to balance supply and demand. The experience so far this year has shown how difficult this is.”

 



 

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