Chicken prices hit nine-year low but set to rise

Chicken prices haven't been so low since October 2007 but consumers should enjoy them while they last.

New figures have confirmed just how cheap chicken has become thanks to a glut facing local producers.

Poultry prices have fallen on an annualised basis for the last 16 months to reach their lowest level since October 2007 - a nine-year low, Statistics New Zealand said today.

The agency said food prices fell 0.9 per cent in September, driven lower by falling poultry and vegetable prices.

The news comes a day after the Business Herald reported that low chicken prices may soon come to an end as producers get supply and demand back into balance.

Statistics New Zealand said chicken prices fell 0.9 percent for last month and 11 per cent over the year to September 2016.

"Chicken prices peaked in December 2014, when the average price of a kilo of chicken breasts was $16.60," said Statistics NZ consumer prices manager Matt Haigh said.

"In September 2016 the average price had fallen to $13.52."

NZ poultry production rose 11 per cent year-on-year in the 12 months to June 2016, to reach 210,000 tonnes, according to a report from sharebroker First NZ Capital published this week.

First NZ said "oversupply conditions" had resulted in a build-up of frozen chicken inventory.

But the glut is expected to recede in the next few months as operators adjust production, according to the report.

First NZ said Tegel, the country's biggest poultry producer, was also increasing exports, which would allow domestic fresh and frozen chicken prices to recover.

"We note red meat retail prices have also been firming in recent times which could also help improve poultry price relativity going forward," the sharebroker added.

Michael Brooks, executive director of the Poultry Industry Association of NZ, said oversupply occurred from time to time when operators misjudged how much supply was needed to meet future demand.

"You're often making supply decisions one or two years ahead," he said.

"It's best guesses and best guesses can't always be right."

Brooks agreed that supply and demand would come back into balance shortly.

"The domestic market is growing at about 4 per cent [annually] and the export market continues to look good."

First NZ said a recent decline in Tegel's share price had been a response from investors to weakness in domestic chicken prices.

Tegel listed on the sharemarket in May at $1.55 a share and the stock traded as high as $1.78 in August before falling sharply, despite no bad news from the company.

The shares recently traded up 2.8 per cent at $1.49.

"In our view this represents a buying opportunity," said First NZ, which has a target price of $2.10 on the stock.

Around 100 million chickens are processed annually in NZ for domestic consumption and export.

Poultry is this country's most consumed meat, having increased its share of per capita meat consumption from 6 per cent in 1970 to 50 per cent in 2014, according to Tegel.

Fruit and vegetable prices fell 5.1 per cent last month, reflecting seasonally lower prices for tomatoes, capsicum, lettuce, and cucumber, Statistics NZ said.