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Poultry industry best poised to handle inflation in second half


Chicken processing margins have much improved this year and will remain strong through the rest of the year because demand will outstrip supply.


An analysis of the most widely consumed protein, chicken, suggests the poultry sector is best positioned to deal with inflation at whatever level. In fact, as demand for chicken domestically and globally increases, the biggest issue might be one that other sectors would like to have, tight supplies.


Despite cost pressures and operational challenges, the global poultry market is bullish, with high demand and tight supply, Rabobank noted in its third quarter 2022 report. The industry’s biggest challenge is operational, with high feed and energy prices due to inflation, labor availability and avian influenza, wrote Nan-Dirk Mulder, senior analyst of animal protein at Rabobank. Rabobank noted the significant impact of AI on the global poultry industry. Europe experienced the highest-pressure AI season in history, with 53 million birds culled. The highly pathogenic avian influenza hit the United States in February, with 38 million birds culled in the leading months. Japan, the Philippines, Mexico and Russia have also seen outbreaks.


One consequence of this challenging context is that supply will be tight, said Mulder. Mid-size 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.


Still, poultry demand remains high as many consumers are choosing to substitute lower-priced chicken for beef products, said Mulder. Weaker economic growth and reduced consumer confidence, in part related to Russia’s invasion of Ukraine, will lead to more consumers trading down to chicken, added Mulder. Rabobank predicted a 0.5% to 1% increase in global production at most for 2022.


Mulder’s comments related to global demand, but they equally could have applied to the US market. Chicken processing margins have much improved this year and will remain strong through the rest of the year because demand will outstrip supply. Chicken production for the year to June 30 totaled 20.443 billion lbs, up only 1.1% on the same period last year. Chicken slaughter was up 1.5%, revealing that birds were being processed at slightly lighter weights.


Conversely, the price of most chicken items was up sharply year-on-year, at least in the last week of June. The 12-city broiler price was up 54.5%; the price of Northeast chicken breasts was up 63.8%; and the price of Northeast leg quarters was up 35.5%.


As higher protein prices began to impact consumers in the first half of the year, it was clear that chicken would have a price advantage over the other main two proteins. The average retail price of chicken in May was $2.42 per lb, according to data from the US Department of Agriculture. This was up 18.6% from May 2021 but was still half the price of pork ($4.89 per lb) and just over three times lower than the average All Fresh beef price ($7.37 per lb).


Par: Steve Kay (08/08/2022)

Source: supermarketperimeter.com

Photo: tirée de l'article original

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