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CME: Russia Protects its Broiler Producers

by 5m Editor
8 November 2010, at 11:13a.m.

GLOBAL - Commodity markets were sharply higher on 4 November as market participants reacted to the sharp depreciation of the US dollar by piling on any hard asset they could find, write Steve Meyer and Len Steiner.

From corn to soybeans to sugar and cotton, prices were higher across the board. Even cattle prices were higher despite softer cash prices and big question marks about beef demand going into the holiday season. Lost in all the market mayhem of the last few days was an announcement by Russia that it will no longer allow imports of frozen poultry product starting on 1 January 2011. The decision represents another blow to hopes of US broiler producers to regain access to the Russian market in 2011. Despite a much publicised agreement between the US and Russian presidents to lift the Russian ban on US broiler imports, it appears that shipments to that market will continue to be minimal for the foreseeable future.

There is little doubt that the intention of the recent Russian decision to ban imports of frozen poultry products is to improve the competitive position of Russian domestic producers. The reason given for the decision was that freezing product "is an outdated and rough technology, which leads to a loss of many of the useful qualities of meat". It is a laughable position that ignores a long record of gains in refrigeration technology and the need of humans to store foodstuffs and facilitate trade. The first chart below shows the steady gains that Russia has made in the last 10 years in achieving self-sufficiency in chicken production.

In 2000, total chicken consumption in Russia was 1.320 million metric tonnes (MT), with 940,000MT or 71 per cent being imported. The Russian financial crisis of 1998 and a very backward industry limited the production potential in the country. Since then, the Russian government and industry have made a concerted effort to reduce the dependency on imports for such an important staple of the Russian consumer's diet.

USDA currently estimates that total chicken consumption in Russia in 2010 will be 2.466 million MT (MMT), with about 2MMT or 81 per cent produced domestically. Forecasts are for total consumption in 2011 to reach 2.720MMT and 2.125MMT will be produced domestically.

It remains to be seen if those forecasts for 2011 materialise given the ban on imports. US broiler exports to Russia in 2010 have been non-existent (see second chart below) but in prior years, 100 per cent of US shipments to Russia were frozen leg quarters and other chicken parts. As for overall US chicken exports, the data shows that about 77 per cent of US broiler shipments were frozen. While it will be possible to ship some chilled product to Russia, costs will be a lot higher and put US producers in a significant cost disadvantage. And that is the whole point.