The laying hen industry remained in the doldrums throughout 2016. When will it recover in 2017?

With the rapid development of the laying hen farming industry, by May 2016 the laying hen inventory had reached an unprecedented peak. What does this historic peak mean? What kind of impact will it bring to this industry? Here, drawing on more than ten years of experience in the industry, I offer my fellow industry friends a bold assessment.

The rush to bring in chicks kept breeder hatching farms running at full capacity, and also brought some substandard hatching eggs and molted breeder hens into the extended production sequence:

1. In a normal year, the period from November to April of the following year is the regular rotation and replacement phase. During this period, apart from a few large poultry companies operating at full capacity, other producers could only put about 70 percent into normal incubation, with normal use lasting 420 to 450 days before basic culling. In 2016, however, the situation was vastly different: not only was production from normal hatchery enterprises unable to meet demand, but even some free-range breeder hens that failed to meet the intended standards joined the busy tide of chick supply. Not only were breeder hens beyond the required age not culled on schedule, some older breeder hens were molted and kept in use, and some even crossbred commercial white chickens to produce fertilized hatching eggs. In the coming months, these chicks, whether in rearing or in laying, will bring all kinds of trouble, and poor disease resistance and low production performance, among many other drawbacks, cannot be ruled out.

2. The extension of the chick placement period means a sharp expansion of market inventory. Normal hatchery production from breeder farms, combined with the entry of molted hens, has accelerated the industry's excessive negative pressure. As of June 5, 2016, the normal incubation of orderly contracts has indirectly created a mistaken judgment of existing inventory, which will make laying hen enterprises and farmers who expanded blindly taste the bitter fruit.

Point-of-lay pullets are a market system that has taken shape independently for laying hen production in recent years, and because it is a newly emerging and expanding industry, it has various drawbacks and hidden risks:

1. As the intermediate hub of this industry, point-of-lay pullets have their necessary place, and precisely because of this, chick rearing quickly formed a single system; 2. An illusion born of imitation led the owners of point-of-lay pullet enterprises to expand and build endlessly, pursuing dominant position in a competitive race; 3. The fulfillment of orderly contracts between December 2015 and May 2016 made the owners of point-of-lay pullet enterprises fairly optimistic about the later market, causing them, after June, to dare to carry out rearing production even without contracts. This frenzied bringing in and scrambling for chicks will plant a time bomb for the production of these point-of-lay pullet farms.

Two consecutive years of sustained profitability for laying hen farms gave practitioners more confidence and accelerated the pace of new construction and expansion. Likewise driven by profit, the capital and people entering the industry expanded rapidly:

1. For two consecutive years, the market was low in the first half and high in the second half, leading practitioners to believe this was an unchanging law; 2. Compared with other industries, the profit space of laying hen farming over the past two years was indeed worthy of investment, so people transferring in from other industries brought in large amounts of capital, making an industry that already had little ability to resist market risk even worse.

The influence of various factors

1. Feed and corn: the big domestic trend is stable with a downward bias, the reason being that warehouse stocks need to be released. But even if these "turnover grains" really exist, they are old grain more than three years old, and their use may mostly be limited to industry, with feed likely unable to reach them. Therefore, reality will soon break the legend of falling corn prices, and rising corn prices are an inevitable course.

2. Soybean meal: precisely because of the rapid expansion of the farming industry and its excessive reliance on protein raw materials, the low-price suppression in 2015 caused domestic rapeseed meal, cottonseed meal and many other protein raw materials to nearly halve in output, which helped drive up imported protein raw materials, and the increase was astonishing. If soybean meal rises to 4,000 yuan per ton and corn to 2,200 yuan, then the cost of compound feed reaches 2,500 yuan. Calculated at the conventional egg-to-feed ratio of 2:1, the cost per ton of eggs is 5,000 yuan. This ratio figure is limited only to the 180-day-old to 350-day-old period when laying hen production performance is at its best.

3. If bran or other items are also driven by linked factors, they too will face sharp increases. Add to this the influence of various force majeure factors: for every 5 percent drop in laying performance, there will be a gap of 263 yuan per 10,000 laying hens. If the laying rate falls to 75 percent, farming can no longer continue. The cost of eggs now stays only at the basis of feed conversion. Even so, for 10,000 laying hens per day, 882 yuan is lost. Persist for 200 days, and that is 176,400 yuan! The longer the time, the more is lost. Labor, water and electricity, and so on are not included, nor are medication and deaths and culling.

4. A 150-day-old reared pullet at 27 yuan each; after 500 days of age, even if culled at 5 yuan per jin, the figures are (27X10000-5X4X9000)

In between, labor, health care, water and electricity, etc. (labor 3500X12 + water and electricity 26000 + health care 20000)

Culling minus rearing, plus labor, health care, water and electricity, roughly another 178,000 yuan is lost. Split this budget in two: if 10,000 laying hens maintain peak laying rate throughout the full 500 days, the loss is 178,000 yuan on its own; if the laying rate falls below 80 percent, the loss can reach 354,400 yuan.

5. The rapidly expanding inventory will be the trigger for falling egg prices. The trend can no longer be stopped; one can only make some basic breakdowns to serve as reference for industry colleagues.

Taking the above points together, combined with existing inventory and per capita consumption capacity, I have a bold conclusion

After June 7, 2016, egg prices will slide rapidly. It can be divided like this: 5600 per ton in early July, 5200 per ton in early August, and the deepest slump will appear from October to December. The crisis will bring laying hen farming into a new reshuffling phase, and whenever this time comes, point-of-lay pullets will also enter a brand-new reshuffling phase. To put it without reservation, one third of peers will be completely eliminated in this reshuffling!

This is not alarmism. There is an account that can be carefully calculated: from July 2016, soybean meal prices at 3500-4000 per ton, corn at 2200 per ton, bran at 1500 per ton. Do the calculation to see the feed cost, then combine it with the expected egg price trend. What conclusion will emerge?

Looking at 2016, the storms remain; looking ahead to 2017, when will spring arrive? It is precisely such violent storms that can set this industry on the right track after a few years! This low-period operation began in mid-June. Based on feeding costs, egg-to-feed conversion, epidemics, and mentality, and after analysis of these several items, it is expected that gradual recovery will begin in May 2017.