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Poultry prices rise as flu spreads to more chicken farms

| Economic factors

RCL Foods and Quantum Foods became on Wednesday the latest major poultry producers to report cases of bird flu, whose effect is beginning to play out in higher meat prices as producers cull birds to contain the spread of the disease.

RCL Foods, owner of Rainbow Chicken, said it culled bird flock on at least two of its farms in the Western Cape and Gauteng, representing 5% of its breed stocks, at a cost of R26m.

Quantum Foods is also reeling from the outbreak, which hit two of its Western Cape commercial layer farms.

Quantum Foods and RCL joined Sovereign Foods and Astral Foods, which recently reported similar cases, pointing to a growing challenge that is now found in most provinces in SA, although still isolated.

"AI [avian influenza] has been spreading across SA, with over 50 reported cases since June 2017. AI is not known to affect humans, so there is no concern from a chicken consumption perspective," RCL Foods said.

Exports of raw meat, eggs and live birds from SA to some trade partners have been disrupted as a result, according to the Department of Agriculture, Forestry and Fisheries.

At least 3-million birds have either been culled or have died since the strain was detected in June, according to Agbiz agricultural economist Wandile Sihlobo, who linked the rise in meat price inflation to the outbreak of the disease.

Meat price inflation rose to an annual rate of 15% in August, from 14.4% in July, according to Statistics SA data. Sihlobo said cattle restocking added to the uptick in meat inflation.

The bird flu came at a time when the poultry industry was recovering from the 2015-16 drought, which drastically pushed up the cost of feed, which in turn squeezed profits.

Since then, prices of primary ingredients such as maize and soya have come off their historic highs as a result of the expected bumper harvest.

Maize, for example, is projected at a record 16.4-million tons for 2017. With lower input costs, the earnings of poultry producers are expected to improve in the coming months despite the avian flu.

To this end, Astral expects headline earnings per share in the year to September to shoot up 65%, to R15.92. The expected increase in earnings is partly attributable to a low base effect from the comparable period a year earlier.

Astral’s share price ended 7% higher at R155.79 on the JSE, giving it a market value of R6.7bn. Quantum Foods settled 8% lower at R2.90, while RCL Foods, which has a more diverse portfolio than just poultry, gained 0.5%, to R14.68.

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