Profitability prompts poultry production increase

by Ron Sterk
Share This:

KANSAS CITY — The largest U.S. processors are adding capacity and the U.S. Department of Agriculture is projecting increased broiler production this year and record output in 2011, indicating the poultry industry is profitable and ready to fill the protein void created by lower red meat production.

In its May World Agricultural Supply and Demand Estimates, the U.S.D.A. forecast 2010 U.S. broiler production at 36,381 million lbs, up 56 million lbs from the department’s April forecast and 2% above 2009 outturn of 35,511 million lbs. Output in 2011 initially was projected at a record 37,500 million lbs, up 3% from 2010.

“Broiler production is expected to strengthen as demand improves with the general economy and as unemployment slowly declines,” the U.S.D.A. said in its May 19 Livestock, Dairy and Poultry Outlook. “Another factor in the decision by integrators to expand is the expectation of lower corn and soybean meal prices in 2010 and 2011.”

In contrast, the U.S.D.A. forecast 2010 beef production at 25,691 million lbs, down 1% from 2009, and projected 2011 output at 25,115 million lbs, down 2.2% from 2010. Pork production was forecast at 22,237 million lbs in 2010, down 3.3% from a year earlier, and at 22,705 million lbs in 2011, up 2.1%. Total red meat and poultry production fell 3.5% in 2009 and was forecast by the U.S.D.A. to increase only 22 million lbs in 2010.

“The broiler industry is pleased to be able to step up production,” said Bill Roenigk, senior vice-president of the National Chicken Council, noting that broilers were the only major category to see increased production in 2010. Broiler producers have the “luxury” of a much shorter production cycle, which allows them to adjust output in only a few months, compared with much longer periods for pork and especially for beef.

Record high feed costs in 2008 made broiler production unprofitable and prompted the first cutback in production since the early 1970s, Mr. Roenigk said, adding that the near 4% reduction in 2009 from 2008 was historically large. But that reduction, and lower feed costs, allowed the industry to return to profitability in the second quarter of 2009, he said.

“Most companies have had four or five quarters of profitability, depending on what they paid for feed,” Mr. Roenigk said. “If feed costs stay manageable, even with Russia and China, the industry should see another four or five quarters of profitability.”

Russia and China, the largest foreign buyers of U.S. poultry meat, virtually shut off imports at the first of the year over trade disputes. Total U.S. first-quarter 2010 broiler export shipments were 1.49 billion lbs, down 15% in the first quarter of 2010, the U.S.D.A. said.

“Shipments to Russia were down 79%, and there were no shipments to Russia in March,” the U.S.D.A. said. “Exports to China were 77% lower, with only 5 million lbs being shipped in March.”

Mr. Roenigk indicated exports to Russia may resume this year, but there was “no guarantee,” while it would be “quite some time” before shipments to China resumed.

The loss of sales to Russia and China significantly reduced the outlet for dark meat, leg quarters and thighs, which is preferred in those countries, while U.S. consumers prefer white meat. But retail sales of dark meat in the United States have been surprisingly strong, possibly due to high red meat prices, Mr. Roenigk surmised.

“Consumers have taken another look at dark meat,” Mr. Roenigk said, noting retailers’ active featuring of leg quarters.

Another key to sustaining the profitability is a noted turnaround in food service traffic, which fell noticeably during the recession last year.

“We have pretty good evidence food service demand is recovering in the fast food and casual dining segments,” Mr. Roenigk said, adding that the increase was as recent as the second quarter.

The poultry industry recovery and optimism for the future has been reflected in recent earnings reports from major poultry processors and in plans to expand processing operations.

“We fully believe that with the strengthening economy and improving fundamentals, consumer demand for chicken is increasing,” Don Jackson, president and chief executive officer of Pilgrim’s Pride Corp., a division of JBS USA, Greeley, Colo., said during the company’s first-quarter 2010 conference call in early May. He also said Pilgrim’s Pride planned to reopen one of its plants in January 2011, another by mid-2011 and a third by the spring of 2012, boosting its capacity by 10%.

Sanderson Farms, Inc., Laurel, Miss., currently has a new plant under construction that is expected to come on line in January 2011 but not reach capacity until 2012.

The bulk of the increase in broiler processing capacity won’t be available until 2012-13, Mr. Roenigk noted, possibly when pork and beef supplies also are on the increase. But the chicken industry will cross that road when it comes to it.

Comment on this Article
We welcome your thoughtful comments. Please comply with our Community rules.








The views expressed in the comments section of Food Business News do not reflect those of Food Business News or its parent company, Sosland Publishing Co., Kansas City, Mo. Concern regarding a specific comment may be registered with the Editor by clicking the Report Abuse link.