Spend Matters welcomes this guest post by Emma Jayne Smith, of Mintec.
After falling to a four-year low in November, U.S. chicken prices have risen by 8% month-over-month in December. The rise will be good news for chicken producers in the U.S. after a difficult year that included Avian Influenza (AI), import bans from many importing countries and a strong dollar pushing prices down. On Nov. 4 the light at the end of the tunnel was seen, with South Korea resuming imports of U.S. chicken. The resulting higher demand has been an influencing factor in driving prices upwards in December.
There have been many reports about the outbreak of AI in the U.S., but chicken broiler production was largely unaffected and the disease mostly affected egg layers and turkeys. There have been no outbreaks reported in the U.S. to date since June 2015.
U.S. chicken prices fell in 2015 due to low international demand and high production and cheap feed materials. The high prices in 2014 meant that chicken producers invested in larger flocks while there were high margins, resulting in higher production in early 2015. Production in 2015 has risen by 4% year-over-year, totalling 17.9 million tonnes.
A strong U.S. dollar has also meant that U.S. chicken has been more expensive on the international market. On top of that, import bans were put into place by China, Russia, South Korea, South Africa and Cuba once the news of the AI outbreak hit, and in October U.S. chicken exports were down 20% y-o-y, to 236,400 tonnes. The additional production and loss of some exports has created an excess of supply pushing the price down.
Since the outbreak is now thought to be over, the U.S. believes the import bans are unjustified and are trying to reverse the decisions. The U.S. is currently discussing with South Africa the removal of the ban on U.S. poultry imports. If South Africa does not agree to lift the ban, then the U.S. is likely to stop duty-free treatment for all South African products.
With Christmas looming, the higher turkey prices may tempt a few U.S. consumers to substitute their traditional roasted bird with chicken. Combined with the likelihood of more export bans being lifted in the coming months, it is possible that chicken prices could continue to increase in price.