Poultry sector may hatch better profits in Q2

Gayathri G Chennai | Updated on July 02, 2014

However, the sector is facing the challenge of rising cost of soyameal

The ₹58,000-crore Indian poultry industry is expected to report higher margins despite realisations being volatile and wide disparity in supply-demand. High feed costs will also remain a concern.

“The outlook for the Indian poultry industry appears better for the second quarter as supplies are affected by the hot weather. The market is expected to remain volatile,” Rabobank said in its quarterly report.

The industry was battered by higher input costs and oversupply in the first quarter. Strong performances in 2010 and 2011 had resulted in sizeable investments in capacity expansion, especially in the broiler segment, leading to oversupply.

Efforts of key integrators in the poultry industry to control supply through hatching holidays, initiated at the fag end of 2012, resulted in improved realisations in the final quarter of 2012-13 fiscal, although these were not for a longer period.

Feed woes

One of the biggest challenges facing the industry is the rising cost of soyameal. Its price increased 40 per cent from $548/tonne in January to $780/tonne in May.

“This was an unwelcome cost as we were already reeling under surplus output and weak prices due to economic downturn,” said R Lakshmanan, Chairman, Broiler Coordination Committee.

Feed costs account for 70 per cent of the total production cost. Though the industry has been experimenting with alternative feed ingredients such as bajra, jowar and rice bran, the scope for substitution remains limited. It is even feared to affect productivity.

The substitutes aren’t cheaper either. “The production cost comes to ₹67-68 a kg while we are able to sell at ₹64-65. We are unable to pass on the costs to the customers as we find resistance from buyers,” he said.

“But the second quarter will be marginally better since there will be a good demand for animal protein in summer,” Lakshmanan said.

Global outlook

The global outlook for the industry, however, remains bullish driven by relative price support from high beef and pork prices.

Demand recovery and a more balanced supply and demand situation in most regions of the world will also support the trend. This will lead to an improvement in profitability for the global poultry industry.

“Under improved global market conditions, led by the North American region, a slight increase in global chicken prices is expected,” said Rabobank analyst Nan-Dirk Mulder.

Global feed prices are expected to decline in the third and fourth quarter based on current fundamentals and a good crop outlook for wheat and soyabeans.

In India, however, “delay in monsoon has changed sentiments, and further progress of monsoon continues to be a very crucial factor. With the central India already lagging behind, the undertone remains bullish. The coming months could be volatile with the price direction depending on monsoon and sowing progress,” says Vinita Advani, Research Analyst at Geojit Comtrade Ltd.

Despite this positive outlook, the possible return of volatility in feed prices remains a threat to the poultry industry in the wake of ongoing concerns about the situation in Ukraine and the potential threat of an El Nino event.

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Published on July 02, 2014
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