The poultry sector could slowly start to emerge from an extended downturn in the second half of this year, making it one to watch for analysts and fund managers, according to Business Day.
The industry has been through a difficult few years, weighed down by cheap imports, soaring feed costs, weak consumer demand and impending regulations to cap the levels of brining allowed in frozen chicken products. The sector had something of a reprieve last year when tariffs were imposed on imports from most regions — though Europe was exempt due to free-trade agreements. However, the sector has since lobbied for duties on "below-cost" imports from Europe.
Market commentators have been divided over the justification for the sector’s protection from imports. Some say consumers will bear the brunt in the form of higher prices, while others say chicken is clearly being "dumped" at below the cost of production.
While maize prices have come down in the past month, this will feed into the system only from the middle of the year as producers buy on the forward market.
South African Poultry Association CEO Kevin Lovell expects that by midyear, the maize price should drop, while the association is hoping for "provisional protection against European dumping" by the end of next month. "It will take a little while for the effects of that to flow through. So there’s a chance that quarter three could start to look better," Mr Lovell says.
However, "unpredictables" remain — including weak consumer demand and the market’s reaction to upcoming elections results. Analysts have highlighted the need for producers to reduce their exposure to individually quick-frozen products, which will be subject to brining regulations.
Source: Business Day