Rabobank: Global poultry outlook to improve in H2 2020

Demand for poultry will be more bullish globally in the second half of the year as the Covid-19 containment measures on the restaurant and hospitality sectors are eased. But issues affecting Europe may mean that overall production on the Continent is lower this year, according to 2 reports released earlier this month.

Rabobank’s Quarter 3 study argues the outlook is gradually improving following the storm that hit the industry in the first half of the year and this is due to lifting demand through the foodservice sector, which will particularly benefit the breast meat sector. Rabobank analysts say poultry demand is expected to improve in the second half with the biggest driver the economic downturn, which makes global markets more volatile and price driven. Such conditions are generally positive for poultry, being the cheapest meat protein with a short and flexible production cycle.

Nan-Dirk Mulder, Rabobank Senior Analyst – Animal Protein, said: “Volatility could be exacerbated by ongoing challenges to balance supply and demand and by exchange rate instability. On the other hand, the relatively bearish feed price outlook will provide producers some relief on the cost side of their businesses.”

Impact of global trade relationships on poultry market

Global trade will remain unstable in the second half of the year and although demand will recover, supply-demand imbalances, exchange volatility and access issues could distort trade flows. A trend of buying local may have an impact, the bank argues.

Finally, trade agreements and restrictions have the potential to keep shaking up global trade flows. The US-China trade relationship, Brexit and a move in the Middle East to improve food security are the main factors that could disrupt global poultry trade.

EU poultry outlook less optimistic

Poultry prices

However, the European Unions Short Term Agricultural Outlook for poultry was less optimistic. The decline in EU prices since mid-March was primarily driven, it says, by the collapse in prices in Poland. Prices fell when restrained exports – due to the spread of avian influenza at the start of the year – combined with lower domestic foodservice demand confronted ample supply. It says the 2% expected decline in poultry production was based on a drop in slaughter between Q2-4 and reflects the market uncertainties, particularly export. However, other white bird meats, such as ducks, guinea fowls, pigeons and quails, are expected to continue to be adversely impacted.

Poultry exports

Turning to exports, the EU report said they had declined sharply (8%) in the first quarter year-on-year, with exports to the UK considerably lower (9%). This has been despite the EU strengthening its position with 2 of its key destinations – the Philippines (+38%) and Ghana (+10%). It said the 2 leading EU exporters had reported contrasting performances. The Dutch had seen a small increase while the Poles had seen exports decline by 10%. With changes in international trade flows (return and expansion of Brazil in China and Ghana), EU exports are expected to decrease by 8% in 2020.

Poultry imports

Imports were also lower in quarter one (-14% year-on-year) as the EU lost attractiveness for its suppliers, such as Brazil, which redirected its shipments to China. Imports are expected to fall by 10% in 2020. And overall EU consumption is expected to decline by 1.9% in 2020 to 24kg per capita as a consequence of the demand fall in the EU foodservice sector.

Foodservice recovery

Rabobank does expect that after facing lows in the first half of 2020, poultry prices will see some recovery in the second half of 2020. Particularly developing countries, such as Pakistan, Iran, Bangladesh, Peru, and several African countries, in which prices plummeted to historic lows, will benefit from the reopening of foodservice, as distribution in these markets heavily depends on foodservice and traditional channels.

The reopening of foodservice should benefit breast meat in particular, but trade will remain difficult. It is expected that dark meat will do better, particularly in the US. In some markets, supply will be tight due to a reduced parent stock, as was the case in the first half of 2020 when weak local demand and complex logistics contributed to a reduced supply. In the second half of 2020, global trade will remain unstable, and as Covid-19 remains a force to be reckoned with.