Fall in chicken housing in May signals tighter supply

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The chicken industry had a very delicate moment during the first four months. Besides a problematic cost structure, the crisis triggered by the coronavirus pandemic began. With the closure of restaurants, hotel chains and other establishments, there was a strong decline in domestic demand, resulting in an aggressive decline in prices, mainly in the São Paulo market. Exports were the counterpoint in that period, and China’s strong demand offered a safe haven for the industry.

As usual in times of crisis, there is a need to adjust supply, and for chicken correcting the route becomes easier due to the shorter cycle compared to other proteins of animal origin. The housing in May depicts exactly this kind of strategy. According to data from APINCO, the housing reached 524.42 million head in May. The supply adjustment was felt throughout the month of June, resulting in a rapid recovery move along the production chain. From January through May, Brazil housed around 2.71 billion head, up 2.4% from the same period last year.

Of course, cutting the housing is not the only reason for the price recovery in the domestic environment. The process of resuming economic activities in some states, however gradual it may be, has led to a better replenishment along the production chain. Moreover, positive export data have been constant in 2020, acting as an important differential for the Brazilian meat industry. The expectation is that the upward movement will continue throughout the first half of July, a period that has a more heated demand. Moreover, the trend in the second half is for a reduction in animal feeding costs as the harvest of the corn’s second crop moves forward. Therefore, the combination of higher prices and falling costs leads to the widening of the operating margin of the activity.