Broiler prices: method to madness?

After a two-month long bull run, national broiler prices have finally marked an inflection point, falling 12 percent in the week ending 11-Jun. That fall was long in the offing, as illustrated by regional differences in prices (For more, read ‘Poultry prices: lockdown confusion?” by BR Research, published on June 05, 2020).

Conventional wisdom states that the precipitous descend shall now continue, considering historic seasonal broiler price trend between peak summer months of June to August. That bet is not without substance.

For one, peak demand month of Ramzan and Eid-ul-Fitr is behind us, while broiler demand traditionally suffers in weeks leading up to Eid-ul-Adha and Aashura. Commercial consumers – including roadside cafes, restaurants, eateries, and caterers – are only partially operational, as uncertainty over enforcement of social distancing and limited business hours continues.

On the other hand, since the lockdown began, weekly broiler prices seem to have largely tracked in the direction of Punjab, where prices peaked in the days before Eid weekend. That phenomenon was explained earlier in this space, reflecting varying pace followed by Punjab and Sindh in easing lockdown. If the direction of price across Punjab holds true for national averages in coming weeks, it appears that poultry prices have stabilized in the 3 weeks since Eid, rather than continuing their precipitous decline.

But that is not a forgone conclusion. One, prices tracked by SPI across various towns and cities across Punjab appear eerily constant over last three weeks, pointing towards district administration doing what it does best: not allowing the market forces to function. Two, according to market sources over the past few weeks raw material prices have crashed substantially.

Poultry feed mainly consists of maize and soybean. While varying estimates exists for each component’s share in cost of feed, together they consist over 90 percent of cost of feed. While soybean/soybean meal is mostly imported, maize is indigenously grown, and as per Economic Survey FY20 released last weekend, it has become the most successful crop in the country.

While a confluence of bumper crop and diminished demand has led to a crash in domestic maize prices, international soybean prices have been on a slide since early Mar-20. And despite a nascent recovery during the last few days, 7-day rolling average of soybean futures is still at a 12-month low, indicating that over all feed prices will remain low in the days to come.

That means national broiler prices have no reason to hover at abnormal levels, except it really depends on how abnormal is defined. Historic trend, coupled with low feed prices suggest that in the weeks leading up Eid-ul-Adha, broiler prices should trade in the Rs 150 – Rs 175kg band nationally. Except, there is one more missing piece in the puzzle.

And that’s price of Day-Old Chicks (DOC). After falling to Rs 5 when the lockdown began, DOC prices have since been resurgent, climbing last week to never-before-seen level of Rs50 in Karachi! This means that despite slowdown since peak Eid demand, DOC supply remains constricted, as growers choose to remain on the side-lines due to uncertainty regarding the future of commercial demand, particularly large scale gatherings - single largest consumer of this protein – that so far remain banned across country indefinitely.

Unless DOC prices stabilize to reasonable levels, poultry’s rollercoaster ride may continue despite slowdown in demand. Interestingly, the negligible difference in DOC price in markets of Lahore and Karachi indicates that the price control in Punjab may only be able to keep a lid on next price swing for so long.