TOKYO – After a challenging December and January, a substantial improvement in US chicken margins is expected in 2019 according to a new report by Mizuho Securities LLC titled, “Protein Preview Pack: Brighter Path Forward.”
The Japanese investment bank and securities firm cited strong overall protein exports and a lower-than-expected increase in new chicken capacity as trends for the upcoming year. The group also predicts an uptick in chicken promotions on foodservice menus and by retailers due to the relative cost of breast meat and ongoing evidence of egg breakage, along with more aggressive cutbacks in the big bird segment.
The report also addressed the ripple effect of African Swine Fever (ASF) on the overall global market. The group stated that the continued outbreak is “likely to weigh heavily on the global supply chain,” and could reshape the protein cycle in the US. The report went on to say that China’s market hogs have been liquidated by up to 5 percent while breeder inventory was culled by 8 percent to 10 percent.
“These are big numbers, if they are accurate and suggest a severe shortage in the largest hog producing nation that will have far-reaching global implications,” Mizuho said, as supply in China will be supplemented by imports.
The bank also indicated that China’s hog producers are culling healthy herds as a preventative measure but also to cut their losses. Currently, producers are unable to get their product to consumer due to biosecurity restrictions on hog and pork transport between provinces.
“We expect the dire outlook of China’s hog supply will incentivize the government to come to trade talks with the US more willing to make a deal, which will drive positive sentiment for stocks,” the Mizuho said. “We also expect any trade deal will also include reopening of the chicken trade at favorable rates, which will be unquestionably good news for chicken producers in the US, which have been sending a higher proportion of byproducts to rendering plants for cents on the dollar.”
Outside of African Swine Fever and poultry, beef packer margins continue to trend favorably, though they are off their seasonal highs. According to Mizuho this trend is expected to continue in the 1st half of 2019.