On the radar for 2017-18. ⢠Market access for foreign poultry ... Weather patterns and potential disruptions in the su
FCC Ag Economics
Economic Snapshot of Canada’s Poultry Sector July 2017
Canadian poultry cash receipts projected to grow 7% into 2018* 4.5
CAD (billions)
4.1 4.0
3.8 3.6
2.5
3.8
3.9
3.4
3.5 3.0
3.7
4.2
3.0
2010
2011
2012
2013
2014
2015
2016
2017p
2018p
*Farm cash receipt forecasts assume an average US$0.75 CAD for 2017
FCC Ag Economics expects farm cash receipts in the poultry sector to climb 4.2% in 2017, reaching $4.1 billion in revenues at the national level. We project a further 2.7% increase in 2018, with farm cash receipts reaching $4.2 billion.
Production growth will drive the majority of revenue gains The largest boost to Canadian poultry revenues will come from production increases in response to rising consumer demand for chicken, turkey and eggs. Chicken production increased 3.7% between July 2016 and June 2017 compared to the previous 12-month period. This was a response to strong demand from processors, amplified by tighter enforcement of restrictions around spent fowl imports from the U.S. in 2016. The overall supply of chicken in the Canadian market has not yet caught up with this adjustment and so production will grow through July 2018. Turkey production climbed 7.0% in 2016 over 2015 levels. The industry has developed a wider range of processed products, triggering additional demand especially during non-traditional seasons. Production should continue climbing throughout the outlook period, albeit at a slower pace.
Sector highlights: next 12 months 1. Poultry revenues projected to climb 2. Farm price will be stable as costs of production are expected to remain flat 3. Production of broilers, eggs and turkey will continue to grow 4. Profitability expected to be positive 5. Retail demand for chicken, turkey and eggs will be strong at moderate retail prices Canadian egg production has continued to grow, climbing 8.1% between June 2016 and May 2017, compared to growth recorded during the preceding 12-month period. Once again, favourable consumer trends and attractive retail pricing triggered the production growth. The average retail price of eggs dropped 3.6% between June 2016 and May 2017 compared to the previous 12 months, making eggs competitive with other proteins.
Farm poultry prices expected to remain stable Canadian farm prices for broilers, turkey and eggs are established by a formula relying heavily on costs of production (CoP), including the price of feed. The July WASDE estimates for 2017-18, the average corn price at US$3.30 and the average barley price at US$5.55. While it currently enjoys a favourable consumer preference bias, prices for Canadian poultry will have to be competitive with other proteins for the sector’s revenues to continue growing at the rate seen since 2015. Pulses are becoming a more popular source of proteins, and retail prices of pork and beef will likely trend down as the available supply of red meat in North America is expected to grow. The USDA projects beef and pork production will climb 5.0% and 3.6%, respectively in 2017. Beef will grow a further 2.2% and pork, another 3.5% in 2018. With abundant per capita supply and barring an unexpected surge in foreign demand for red meat, neither beef nor pork prices should rise.
International and domestic demand for chicken is robust Canadian consumer demand for chicken remains strong despite the price drops that have resurrected red meat as a competitive alternative. Between June 2016 and May 2017, average retail prices for beef dropped 4.5%, and pork declined 2.8% compared to the previous 12-month period. At the same time, chicken retail prices were, on average, flat. Competition among retailers is expected to remain intense in 2017, with chicken likely to be featured in sales at Canadian grocery stores.
Profit margins should remain positive into 2018 While pressures to be more productive and efficient will continue, poultry producers’ margins should be positive and remain above each sector’s average CoP. The weak Canadian dollar – with the average in the second half of 2017 expected to remain below US$0.78 – pushes feed grain prices higher than would normally be seen when our currency is closer to par with the USD. The lower loonie also results in pricier equipment imported from the U.S. and Europe. However, producer prices will partially offset any increase in CoP.
On the radar for 2017-18 • Market access for foreign poultry products into Canada: – Renegotiation of the North American Free Trade Agreement (NAFTA). – Possible renewal of the Trans-Pacific Partnership (TPP) agreement. • Balance between demand and availability of chicken products in the domestic market. • Patterns in the USD/CAD exchange rate. Trends in oil prices and interest rates in Canada and the U.S. will determine the relative value of both currencies. • Weather patterns and potential disruptions in the supply of available feed grains and their impact on CoP.
Chicken will remain popular in world markets in the next year, yet the pace of increase in world consumption is projected to start slowing across all regions. Asian consumption of chicken grew at an annual average rate of 4.2% between 2006 and 2016, but the OECD-FAO projects a slower annual average growth rate of 1.9% between 2017 and 2026.
Learn more about the economic events that could impact our industry and your bottom line. Our team of economists and researchers share their unique perspectives in the reports, videos, blogs and articles available on our website. fcc.ca/AgEconomics
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As a group, OECD countries should record an average annual 0.7% rate of growth for the next ten years, down from their 2.0% increase over the last ten years.
Follow the team on Twitter J.P. Gervais Martha Roberts Leigh Anderson Craig Klemmer Amy Carduner
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