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High Feed Prices Continue to Affect Margins

22 November 2012

GLOBAL - The global poultry industry continues to face the challenge of high feed costs, which is putting margins under pressure in many parts of the world, according to Rabobank’s latest quarterly poultry report.

Profitability swings are an ongoing problem for the industry, which saw similarly sharp increases in feed costs in 2008 and 2010. In developed countries in particular, the industry lacks adequate power to pass on feed cost increases. Key factors driving this adverse situation are oversupply, government restrictions regarding plant closures, fragmented industries, inflexible supply chains and pricing models in the value chain.

Commenting on the outlook for the poultry industry, Rabobank analyst Nan-Dirk Mulder said: “The first quarter of 2013 is likely to be challenging as higher feed input costs move through the flocks. Beyond that, returns will depend on industry discipline in keeping production sufficiently moderated to get prices higher and offset increasing costs. Weak global performance is urging industry players to rationalise supply base, and non-strategic vehicles are being divested.

“The most challenged poultry industries are currently in the US, the EU, Thailand and South Africa, though companies in Russia and Brazil are performing relatively well. The US has only recently started making supply cuts, and this is also the case for the EU. South Africa is currently flooded with broiler import volumes from the EU, with sharply falling local prices. Thai production expansion in the last two years has been too fast to be in balance with current market demand. This has resulted in large oversupply in the domestic Thai market and declining revenues in concert with increased feed costs,” Mulder added.

The EU is an example of a region that has seen a structural reduction in margins. Recent levels have fallen from historic averages of 6 per cent - 7 per cent to 4 per cent-5 per cent and even temporarily lower during some of the spikes in compound feed prices that have been seen this year. In the US, we’ve even seen negative EBITDA margins in the industry in times of high feed prices but current margins are slightly higher, although below its historic level. Supply reductions have paid off here, but not yet enough.

Further Reading

You can view the full report by clicking here.

ThePoultrySite News Desk

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