Chicken May Rule Firm as Demand Outstrips Supply

US - Rising prices of maize are likely to be a source of concern for the Reserve Bank of India over the next two years, with the demand-supply gap for the key feed ingredient expected to exacerbate in this period.
calendar icon 11 March 2013
clock icon 4 minute read

Food inflation in India has been driven by a sharp rise in the cost of poultry meat, which in turn has been spurred by the spiral ascent of maize (corn) prices globally, reports The Hindu Business Line. Chicken prices shot up by 21 per cent in January 2013 in comparison to the corresponding month of the previous year. It was the primary driver of food inflation during the month.

Prices of poultry were nearly 14 per cent higher on an average in 2011-12 than the previous year. Simultaneously, eggs and milk prices have also been rising steadily as a consequence of costlier feed.

According to International Grains Council (IGC) forecasts, production of maize is expected to fall short of consumption by 15 million tonnes (mt) in 2013-14, resulting in upward pressure on prices in India and overseas. The gap is expected to narrow to 3 mt in 2014-15 as cultivation of the crop is stepped up and in 2015-16, the situation will vastly improve as production outstrips demand by 3 mt, which will expand to 7 mt in 2016-17 and 2017-18.

Over the past five years, production of maize has only risen by 0.9 per cent, even as consumption grew by 1.7 per cent. In 2013-14, however, production will shoot up by 10.3 per cent and consumption by 6.2 per cent. Over the 2014-15 to 2017-18 period, demand is expected to grow by 1.7 per cent and consumption by 5.5 per cent.

Spot prices of maize have fallen from their peak of Rs 15,770 a tonne on the MCX in August 2012. But the worst appears to be over and the long-term trend for the agri-commodity is upward. Corn is presently trading at Rs 13,125 a tonne on the MCX. The immediate support is at Rs 12,950/ tonne and the support after this level is at Rs 11,750/ tonne. The key resistance will be at Rs 1,410 a tonne.

Maize is the third-largest agricultural crop in India, accounting for over 50 per cent of total kharif coarse cereal production. Production of maize has grown at a compound annual growth rate (CAGR) of 4.9 per cent over the past decade and amounted to 21.5 mt in 2011-12.

In contrast, consumption of maize has grown at a CAGR of 3.28 per cent and stood at 18-18.5 mt last fiscal. Around 50 per cent of total consumption is used for feed, primarily poultry feed, while around 5-10 per cent is used by the starch industry.

The weather will play an important role in determining the extent of maize production in 2013-14.

Temperature, rainfall and moisture are factors that determine the condition of the crop. But the minimum support prices announced by the Government for maize will play an equally important role in motivating greater cultivation of the commodity.

At any rate, the availability of substitute products at a cheaper rate could weaken demand, particularly if the price of corn becomes too high to stomach. For example, jowar and bajra may be substituted by poultry feed manufacturers instead of maize.

But seasonal fluctuation should be expected, as prices tend to be lower as harvesting progresses and produce starts coming into the market, but rises at the time of sowing and before harvesting due to the tight supply situation.

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