Broiler price slump flips industry chain profits to losses in August

However, this year has been quite unusual, with broiler prices falling to their year-to-date lows, chick prices showing high quotes but low actual transactions, and poor circulation of product trade. This article will analyze the causes from the perspectives of broiler supply and demand, as well as breeding profits.

First, current frozen chicken inventory at slaughtering enterprises remains high, with Shandong slaughterers even collectively renting external cold storage to support prices. After calculating cold storage costs and conducting comprehensive cost-benefit assessments, slaughterers found that the average monthly cost of "price support + warehouse rental" is lower than the loss from price cuts.

As a result, they have chosen to continue renting storage to hold prices, leading to a smaller decline in product prices compared to broiler prices. The destocking of frozen inventory has been repeatedly delayed, with the general expectation pinned on the August peak season to achieve centralized destocking in time for the school season.

However, the recovery in terminal demand (catering and group meals) in August has fallen far short of expectations. The accumulated inventory pressure that had been repeatedly postponed has now erupted. In order to alleviate inventory and capital pressures, slaughtering enterprises have been forced to lower prices to move goods and sharply cut purchase prices for broilers, essentially ending their stockpiling activities. Distributors are adopting a wait-and-see approach, with strong bearish sentiment toward product prices.

Against this backdrop of downward pressure on broiler prices, what are the profits of incubation and farming enterprises?

According to data from Mysteel, the average theoretical incubation profit for pure broiler incubation enterprises this month was Yuan 0.08/chick, down 61.90% month-on-month. Over the month, incubation enterprises shifted from profitability to losses, with the highest profit at Yuan 0.62/chick and the maximum loss at Yuan 1.25/chick.

The decline in chick prices has resulted in substantial losses for incubation enterprises, especially after August 25, when broiler chick sales profits turned directly from slight gains to losses. Corresponding to earlier breeding egg costs, market eggs were priced at Yuan 1.50–1.90/piece (translating to a chick cost of Yuan 2.10–2.60/chick), with current small-factory chick transaction prices at Yuan 1.30–1.80/chick, contract eggs at Yuan 2.00–2.40/piece (translating to a chick cost of Yuan 2.70–3.20/chick), and medium-to-large factory transaction prices at Yuan 1.80–2.20/chick, resulting in actual losses of Yuan 0.80–1.20/chick.

For farming enterprises, according to Mysteel, the average profit for parent-stock poultry enterprises this month was Yuan 0.12/chick, up 185.71% month-on-month. These enterprises saw limited profitability overall, with severe losses also emerging at month-end. The maximum profit was 0.60 RMB/chick, while the loss at month-end reached 0.83 RMB/chick. Over the month, chick costs changed little; in the first half, chick selling prices were acceptable, allowing some profit. By month-end, falling broiler prices dragged chick prices into a continuous decline, with market quotes high but actual transactions much lower. Chick prices became chaotic and dropped to low levels, widening losses for breeding enterprises.

Calculated based on a feed conversion ratio of 1.34 in Shandong and 1.37 in Northeast China, an average slaughter weight of 5.50 jin, and real-time fluctuations in feed prices and chick costs, the loss for broiler farming in August was Yuan 0.47 per bird.

At the start of the month, broiler prices rebounded somewhat, allowing farmers to turn losses into brief profits. However, as chick costs rose and feed prices were repeatedly raised, the farming sector returned to losses in the second half of August. Particularly in late August, broiler prices hit bottom, with Shandong purchase prices breaking through Yuan 3/jin and Northeast prices falling to their yearly lows. Farming operations entered deep-loss territory, with per-bird losses reaching as high as 2.00–3.00 Yuan.

As the downstream segment of the broiler industry, slaughtering enterprises also shifted from profit to loss in August. According to Mysteel's data, the theoretical average comprehensive selling price for broilers nationwide in August was Yuan 9,014.09/tonne, and the average farm-gate transaction price was Yuan 3.35/jin.

Assuming full production, full sales, and 100% capacity utilization, under a theoretical "slaughter-and-sell-immediately" model, slaughterers' average theoretical profit was 1.15 Yuan per bird. However, when factoring in inventory carrying losses and other real-world conditions, Northeast factories saw profit ranges of Yuan -0.50 to 0.30 per bird, while Shandong factories ranged from Yuan -0.15 to 0.30 per bird.

Looking ahead, in the short term (September and the near future), the broiler market is still searching for balance amid supply-demand negotiations. Phased demand from school openings and stockpiling for the Mid-Autumn Festival and National Day may provide some boost, but high frozen chicken inventory and cautious purchasing attitudes among traders will limit the magnitude of any rebound. Prices are more likely to show oscillatory adjustments, and there is even the possibility of a brief pullback after stocking-up expectations are realized. In the medium-to-long term (fourth quarter and beyond), as the impact of the broiler breeder import gap further transmits to the commercial generation, supply contraction will become the dominant force. With consumer demand remaining relatively stable, reduced supply is expected to push broiler and chicken meat prices out of their bottom and achieve a trend-driven recovery. At that time, industry chain profits will shift upstream to the breeding stock and chick segments.