The poultry sector, both domestic and global, is on a revival path, driven by robust export demand and the private sector’s expansion of the broiler meat industry.

Rabobank, in its Global Poultry quarterly Q1 2024, says the 2024 outlook for the global poultry market is moderately positive, with a forecast of 1.5- 2 per cent growth. “Though a decline from the long-term average of 2.5 per cent per year, it’s a sign of recovery from 2023’s 1.1 per cent. With declines expected in pork and beef markets, poultry is expected to be the fastest-growing protein in a global animal protein market forecast to grow just 0.4 per cent year-on-year,” it added.

According to EMR market research, the India poultry market, currently valued at $28.18 billion, is expected to grow at a CAGR of 8.1 per cent in the forecast period of 2024-32 and reach approximately $44.97 billion by 2032. 

Exports of domestic poultry products, which crossed the ₹1,000 crore mark in the first nine months, are set to scale a new record of ₹1,200 crore in the current financial year 2023-24 on strong demand from countries such as Oman and Sri Lanka among others. India’s poultry exports touched a high of ₹1,081 crore ($134.04 million) during 2022-23, doubling over the previous year’s ₹529.8 crore ($71 million).

However, these upbeat prospects are not reflected in the poultry stocks. Shares of poultry players such as Venky’s India, SKM Egg Products and Simran Farms have been trading in the red for quite some time. Shares of Venky’s are now trading at ₹1,762.90 on the BSE, down 1.6 per cent from its previous close. The stock has given a -7.43 per cent return over three months. The company reported a net loss of ₹7.94 crore for Q3 FY24, causing a 6 per cent slide in shares. Simran Farms is now trading at ₹129.40, up 2.29 per cent, with a 3-month return of -20.5 per cent. SKM Egg Products, a 100 per cent export-oriented company, too, is trading in the red at ₹243.60 (down 3.75 per cent). The company’s Q3 net slid 56.9 per cent to ₹11.71 crore yielding a -34 per cent return in the last three months. Ovobel Foods, an egg powder and liquid egg producer-cum-exporter, is at ₹220 on the BSE - down 1.23 per cent from its previous close.

Raw material spikes

According to analysts, higher input costs and lower crop projections may spike production costs and pressure these companies margins. “Feed costs will move slightly lower, but global geopolitical issues like the Ukraine war, turmoil in the Middle East, and weather risks could affect feed costs, as well as oil and gas prices,” the Rabobank report added. Feed costs account for more than one-third of the production cost. 

The Ministry of Agriculture and Farmers’ Welfare, in its second advance estimates for major crops for the 2023-24 season (July-June), pegged maize output lower by at least 6 million tonnes (mt) at 32.47 mt against 38.09 mt a year ago. Oilseeds production has also been pegged lower at 36.59 mt (41.35 mt). The output of soyabean, a major ingredient in the poultry feed, is seen at 12.56 mt against 14.98 in the previous season. 

This year, maize prices are rising higher not only due to lower output but also to demand from ethanol production. The one solace is that exports may not be feasible as a result, and the poultry sector has the option of importing 5 lakh tonnes of maize under the tariff rate quota regime. 

Demand for poultry feed in the country has been rising at around 8-10 per cent annually over the last decade. Currently, 60 per cent of domestic maize production is used as feed. Major poultry associations have written to the Union government to allow duty-free maize imports , including GM crop, to enable the poultry industry to meet its future requirements. 

Realisations hit

All these factors are putting pressure on producer companies and their margins. ICRA expects the revenue growth for its sample set of domestic poultry companies to improve mildly to nearly 5-6 per cent in FY2025 after an estimated modest YoY growth of 3-4 per cent in FY24. 

“The growth will be driven by demand improvement, increasing share of organised players and growing preference for value-added products. While broiler meat realisations continued to be strong till 7M FY2024 (YoY growth of 2 per cent), they started tapering thereafter due to high placement and excess supply in key markets. Subsequently, Q3 FY2024 witnessed a 10 per cent QoQ drop in average realisations, resulting in overall flat average numbers in 9M FY2024 on a YoY basis,” the report added.

However, ICRA added that the same could be revived gradually as the oversupply scenario corrects over the next few months. While realisations improved in 7M FY2024 following controlled supply and healthy demand, softened feed costs further supported poultry companies’ earnings. 

Currently, the weighted average national price of maize is ₹2,188 per quintal compared with ₹2,025 a year ago. However, soyabean prices have eased in the current fiscal and average prices in the first three quarters declined 14 per cent vis-à-vis FY2023. 

Initially, maize prices were lower during October compared with the year-ago period.

“However, the realisations started tapering from November 2023 onwards and the grain prices, particularly maize, also started rallying since then. Further, significant contraction in soyabean harvest during the kharif season and delayed sowing of maize may result in a potential spike in feed costs and is likely to exert pressure on the margins of poultry companies over the next few quarters,” the report added.