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William Bland:

Hello and welcome to the Platts Commodities Focus podcast by S&P Global Commodity Insights. Today we'll be talking about the poultry market and how it's responding to the potential impact of a trade war.

I am William Bland, manager for price reporting in the EMEA agriculture and food team. And to explain what's driving global poultry prices, I'm joined from the US by poultry analyst Kelly Seier, and senior price reporter Luke Lundgren. And from Sao Paolo we also have our Brazil poultry price reporter, Beatriz Baltieri.

Chicken is the world's second most produced protein at 103 million tons in 2024 just behind pork. However, it's number one in terms of the quantity traded. Two countries, Brazil and the US together provide around 60% of all the chicken meat that's sold between countries. Competitively produced exports from the US first sparked a trade war in the 1960s when France and Germany imposed import restrictions sparking a so-called chicken war. 60 years later, a ban on chicken imports isn't the trigger for a trade war, but it's one of the possible retaliatory measures. In January, President Donald Trump proposed tariffs on all imports from Mexico and since then, US exporters of chicken have been considering what might happen if they're locked out of one of their biggest markets. Let's start with Kelly. Can you please give us a quick overview of the state of the US chicken market and where their exports go?

Kelly Seier:

Absolutely. So here in 2024, so this past year, chicken meat production increased by about one and a half percent over the prior year, 2023's production. Cumulatively for the year, we totaled roughly 47 billion ready to cook pounds annually. In 2024, exports fell over 7% from the year prior. While that domestic consumption here in the US rose by about 3%. Mexico is the largest single importer of US chicken, one of our biggest trade partners. They imported 24% of the total exported volume in 2024, which totaled 1.6 billion pounds of imported US chicken. Most of the volume to Mexico that is traded goes as fresh leg quarters or just fresh dark meat, which is a pretty unique advantage that Mexico has to the US as opposed to some of our other trade partner countries. That definitely affords them the ability to bring in that fresh volume.

For context, the second-highest volume with any of our trade partners would be actually with Cuba. So cumulatively in 2024, Cuba imported 557 million pounds of US chicken, which was less than a third of the volume that we sent to Mexico.

William Bland:

Strange to think of Cuba as a major trade partner of the US and really interesting that Mexico is lucky to get fresh imports. Turning to Beatriz, is Brazil well positioned to take advantage if Mexico decided to switch away from US supplies?

Beatriz Baltieri:

Yes. Well Brazil today it represents the largest exporter of chicken in the whole world and reaching the record high in the past year of 5.1 Million metric tons. On the whole of major importers from Brazilian chicken, Mexico occupies the eighth position, but it has been watching 23 to 25% increase compared to the previous year and it has been increasing by 20% every year since 2021. So Mexico is gaining a lot of relevance among the main importers of Brazilian chicken.

The main cuts that Mexico imports from Brazil is chicken breast, which differs a little from what it imports from the United States. So it gives Brazil a relevance on a different market, but in terms of increasing this consumption of Brazilian breast even further, I must say that Mexico competes with big importers of Brazilian chicken breast like UAE, which is the largest importer, also the European Union and the Saudi Arabia, which today buys at a positive spread from Mexico. So in terms of supply, Brazil is well positioned, but in terms of the global trade, we'll have to watch.

William Bland:

So if Mexico is going to buy Brazilian chicken breast, they're going to have to compete with Saudi Arabia and pay more?

Beatriz Baltieri:

Yes, this makes perfect sense. Of course there are a couple of politics that have been taking place ever since this increase on consumption of Brazilian products from Mexico started and one of them is the signing of a package called PASEC, which is a governed package to lower tariffs on imported goods that are for basic consumption in Mexico. And Brazilian chicken is in this program. So this gives an advantage for Brazilian chicken to go into Mexico and for Brazilian exporters to export into Mexico, which doesn't happen in every destination that Brazil plays like Europe or even Saudi Arabia.

William Bland:

Thanks Beatriz. And I think we'll come on to the structural challenges for Mexico, were it to shift from a chilled product to a frozen product later. But, Luke, firstly, is there any chance of Mexico shifting away from US chicken exports, even if they don't apply a tariff on chicken from the US?

Luke Lundgren:

Well, there's always a chance, right? But given the proximity and kind of the size of the market, I think it's unlikely that without some kind of major shift to policy to force their hand that we would see Mexico turn to replace kind of their current situation with the US.

William Bland:

What about the prices at the moment? What's been happening to the Platts chicken assessment since it was launched last June?

Luke Lundgren:

Well, the current Platts chicken assessment is geared towards the frozen chicken leg quarter market. So it has a little bit of a different spot within kind of the trade flow versus what the US primarily moves to Mexico for kind of global exports. On the frozen chicken leg quarter side, US supplies about 8% to 9% of our outgoing volume to Mexico rather than some of the kind of higher volume fresh product that we move. And those prices have actually held pretty strong even on the frozen side of the market. We've seen that market well supported over the last couple of years and they're actually sitting at multi-year highs where average prices for the frozen leg quarters around 2023 were 43 cents a pound, and through most of 2024 through now we've held above 50 cents a pound. So it is still kind of at a premium for a lot of the other offerings into the global market if that is getting sourced from the US.

William Bland:

Thanks. And with such strong pricing for chicken in the US on the domestic market, do you think that tariffs on export to Mexico would reduce the price of chicken in the US and see less chicken meat leaving the country?

Luke Lundgren:

Yes, I do think there would be an impact from tariffs that would just keep some volumes down and transition things a little bit, but so far the market has actually been really cautious or understanding of the potential for this change and they're willing to wait out to see if any official tariffs came through. Early feedback from exporters was just that the chicken market was too big to crush and that we weren't going to see people really completely abandon it and prices would get passed on more in a retail capacity as that flow maintained. You'd mentioned the US side, US domestic demand has been very strong as of late and they've seen competition from high beef prices, which have helped keep things strong from the food service industry to keep their chicken offerings there. And even looking at kind of USDA numbers for where the boneless, skinless breasts are, we've seen prices go up 30% in the last month and we're up 54% against where we were last year.

William Bland:

So from the traders and the packers that you talk to every day, you're not sensing much anxiety or concern at the moment about tariffs on exports to their biggest market?

Luke Lundgren:

Not quite as much. And kind of like I had mentioned, seeing a lot of demand driven price support, right? So when the US market is so strong, people are going to be a little bit more reluctant to bring the prices down and they see that kind of as an outflow. And even with kind of relative value showing a potential for increased US demand as there's kind of a price spread between the different cuts, it's not going to be a replacement. There's consumer preference for certain cuts of meat and how they're used into the market and kind of some cultural lines on that too. So the back half of the bird isn't really going to replace kind of some of the strength we've seen in the US boneless, skinless breast market.

And given those different preferences and the different cuts, the export market coming out of the US is kind of a way that a lot of production facilities, chicken producers, will use to clear what they have on excess dark meat demand. So if you look at some of the recent data we've actually seen, most recent available out of the USDA is from January, that we saw the frozen leg quarters fall below 200 million pounds for the first time since 2022. And that does show a kind of willingness for some more usage within the US market, but it doesn't really look like there's enough of a shift to replace that outlet to the wider export market.

William Bland:

Right. So if Mexico were to stop buying US exports of such cuts, anyone ready to pick up the slack, where would they go? Any ideas from the three of you?

Beatriz Baltieri:

Well, I think they would have to come to Brazil anyway because of supply and also because of price competitiveness, because we've been talking about how chicken breast prices from US are close to a thousand dollars per metric ton higher than Brazilian prices into Mexico. And this is really connected really in line with what Luke brought regarding the consumer's preference of chicken breast on the domestic market to the US.

So in Brazil, the most preferred cut on the domestic market is also chicken breast, but the supply is still larger because first, the devaluation of the currency really incentivized the exporters to place more volume in the export market, so there's guarantees on availability. Plus the supply has not been affected for bird flu or anything such as northern countries have been going through. So Brazilian prices have been more steady compared to US prices on the chicken breast market. And the global scenario continues to show a strengthening on US dollar economically speaking. So this is probably going to keep Brazilian currency devaluated and thus prices of export chicken competitive versus the US.

William Bland:

Often we come across these long-term questions as agricultural producers in the US, to what extent can you compete with what appears to be the lowest cost producer in the world in Brazil and in the chicken meat market? This is a particularly obvious moment right now, but what other challenges do you see possibly about Brazil meeting any demand created from any additional demand in Mexico? If US-Mexico relations deteriorate further, can Brazil step in?

Beatriz Baltieri:

Well, that's a great question. Well, although Brazil is in fact really well positioned globally to supply chicken to most of importers, there are some production issues that the industry has been facing here. I've been talking to a lot of sources lately that have been raising the question of how genetics, which by genetics I mean fertile eggs and one-day-old chicks, how this is a current problem here on the supply side because of a shortage. And this is a global issue, but in Brazil it is affecting current production. And it's mainly because throughout the years of 2022 to 2023, the poultry industry here in Brazil has gone through a bad margin scenario.

So the investments on increasing breeders flocks and thus increasing fertile eggs and one-day-old-chicks production has stopped. So right now we are dealing here with a flock of breeders that is older than they should have been, and the fertility is lower. So this is actually keeping production from increasing as much. And I will ask Kelly to give a more detailed explanation on what fertile eggs and genetics are and please Kelly and maybe approach the US situation on this as well?

Kelly Seier:

Absolutely. So from the fertility side of going into the production line, the reason that that is impactful is just because as the breeder flock is getting older, there tends to be a decrease in the viability of those eggs and of those birds that would be coming out of that genetic pool. So especially in the Brazilian space as you were saying, there have been some issues with that aging breeder flock, so those birds that are coming downstream into the production line are not surviving as long as they should, so they're not making their way into the production line to produce that ready to cook or just consumable chicken protein.

It's a little bit similar to what is happening here in the US. We're experiencing some challenges with what we call the metrics livability and hatchability. So the hatchability is the ratio of those eggs that is actually able to hatch to start to make their way into the production line. And the livability is the ratio of those young chicks that will make it through the growing process into the production line to become that ready to cook and that chicken breast in front of you.

William Bland:

Thanks Kelly, but both the livability and the hatchability as a percentage are coming down in both Brazil and the US, but faster in Brazil, is that what we're seeing?

Kelly Seier:

Yes.

Beatriz Baltieri:

Yes. There is even an official data that the hatchability has been coming down from 2023 to 2024 by 5%. So the average of hatchability of eggs here in Brazil used to be 80% of total eggs placed, and now it has gone down to 75%. So it is considered by the industry as a large decrease, so it impacts significantly the ability to produce. And besides that, the fact that genetics is affecting availability of eggs and increasing in production, the biggest concern is how long could it take for the situation to be normalized? Because from the increase on a breeder's flock until the new eggs and chicks start to reach productive age, it goes from seven to eight months. So placing new breeders now, we would only watch the result by the first half of the second semester.

William Bland:

So both livability and hatchability have come down in the US and Brazil, but more in Brazil. What is it that makes fewer eggs yield live chickens, i.e., lower the hatchability ratio?

Kelly Seier:

So there's a lot of different factors that can impact both the livability and hatchability on the production side for those birds. As Beatriz has brought up, the genetics is typically one of the bigger components in that. From the US perspective, both livability and hatchability, as they have started to come down just a little bit, it's about down a percent year over year.

There are a lot of things that the US is doing to help offset those impacts. So for example, the broiler egg sets, those broiler egg sets placed have been increasing in the US, which has positively supported our harvest outlook, which actually lends to our growth there in production. Some of the more challenges that you see, or rather the effects from decreased livability and hatchability I think are a little bit more apparent in the Brazilian production outlook where the aging flocks, the aging breeder flocks have decreased the viability of those young chicks and those eggs, which has negatively impacted their production levels and brought down a little bit of the production side there.

William Bland:

Thank you. And as Luke was saying earlier, US production in spite of the concerns around bird flu hasn't suffered nearly as much as we might've expected. Is that a fair picture?

Kelly Seier:

Yes, that's correct.

William Bland:

And even in this hypothetical world of trade wars, if we return to the world as it seems from Mexico and the position of a Mexican importer of poultry who really wanted to switch away from US chicken to Brazilian chicken, surely shifting from a chilled product to a frozen product creates capacity issues. Is that right, Kelly?

Kelly Seier:

Yes, that would be correct. The infrastructure needed for a chilled versus a frozen product, it does differ. So from our own export data here in the US, the November export data showed that the US is shipping about 300 million pounds of frozen broiler meat to Mexico annually. While our Brazilian sources, and Beatriz, please correct me if I'm wrong, it indicates that frozen storage in Mexico is not a major concern just due to that country's diverse frozen protein imports, which we have seen definitely in stride as Brazil has stepped in to help support some of Mexico's imports here.

While the US primarily supplies that fresh dark meat because there is a really quick delivery period there, it's about seven days for that fresh product to get into Mexico and to be taken in and processed throughout their country, brazil focuses on frozen boneless chicken breasts with a shipment time of 30 to 45 days and a delivery timeframe of 25 to 45 days. So that's kind of the big highlight there in the differing supply dynamics between the two countries, with the US proximity working to its advantage with exports to allow for that expeditious delivery, whereas Brazil has a little bit more of a hurdle to get that product to Mexico. So in order for it to be safe, it typically needs to be frozen.

William Bland:

Thank you, that's really helpful. Giving everyone an insight into why a trade war and tariffs in Mexico, even if they were introduced, might not suddenly reconfigure the flow of chicken into that country. The existing market ties to the US and their Mexico's product tastes are robust enough to withstand the impact of tariffs even if they were implemented. That's your view, some of you, anyway.

Thank you very much, Kelly, Beatriz, and Luke for joining us in this conversation. And thank you to our listeners for tuning in. This Commodities Focus episode was produced by Jennifer Pedrick and Maite Perez.