US poultry industry faces up to challenges

Related tags Influenza European union Us

The popularity of low-carb diets has helped to maintain demand for
poultry products in the US, according to financial analysts
Motley Fool Stock Advisor. But exports have been
adversely affected, and there are problems on the horizon for the
sector.

US meat processors Sanderson Farms, Tyson Foods, Pilgrim's Pride and Smithfield Foods have all experienced share-price boosts despite the bird flu epidemic and increasing prices, and the domestic market for poultry remains robust. The popularity of the Atkins diet and public scepticism over health scares have been major factors in the sector's buoyancy.

However, exports of US poultry products have been affected. Since early February, China and many other countries around the world have imposed bans on American poultry products. The ban left 16,000 tons of chicken feet stranded in mid-shipment. The ban has forced exporters to store, destroy, or divert the product to alternative markets, such as animal food processing plants, which pay 10 per cent of what suppliers normally get selling to China.

About 15 per cent of US poultry products are exported, and this market has been significantly reduced by the continued worldwide ban, though the European Union lifted its ban on US poultry goods this week.

There are other threats to the industry's well being. Grain prices continue to soar, which means high feed prices in a market with an already tight margin. Soybean futures are trading at a 16-year high and in Brazil, a recent strike shut down the country's largest grain port for five days.

The supply chain slowdown came on top of poor crop yields in both the US and Brazil and strong demand for grains. This has hit European poultry producers as well.

"Overall we estimate that right now the poultry industry is facing a massive £190 million increase in its feed bill alone,"​ said British Poultry Council (BPC) chief executive Peter Bradnock. "It is quite simply a cost too far. Companies have been absorbing a whole range of inflationary costs over the years, but this increase cannot be met through even greater efficiencies on the part of farmers or processors."

In addition, high freight rates are expected to continue to climb as shipping lines in the US implement federal security regulations aimed at thwarting terrorism. Other costs including insurance, fuel, terminal charges and even container prices are also on the increase.

A report on the container ship market by analyst Howe Robinson suggests that all this is creating a 'tonnage squeeze,' with ships available for charter certain to be in short supply in 2004. Some container lines will be forced to cut non-core services if they become unprofitable.

Finally, there is concern that Vietnam is seeking to import between 500,000 to 600,000 tonnes of corn for feed as it moves to restock poultry flocks hit by the outbreak of bird flu earlier this year, even though the FAO has warned the country not to resume poultry farming too quickly.

The move is supported by the Vietnam Husbandry Feed Association, which represents 138 feed processors in the country. It has warned of a possible rise in feed prices of up to 1.5 per cent, with processors looking to offset losses caused by bird flu.

Aside from the health aspect, there are fears that quick restocking could further undermine public confidence in poultry products. European consumers have been especially jittery since the issue of bird flu began to dominate the news agenda a few months ago.

However, it would appear that US consumers do not share Europe's paranoia over food safety issues. Despite the localised outbreaks of BSE and bird flu in the US, and the global epidemic that did so much to undermine consumer confidence in poultry elsewhere, consumption of meat in the US has not declined.

But it remains to be seen how long the popularity of a diet, and public indifference to global concern, can support an industry that faces such severe challenges.

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