The Attraction of More - 3

Chicken Producers Brave Expansion

Low cost feed is one of the biggest positives for chicken producers, as production continues to increase in spite of recent price drops. (Photo courtesy MSU Ag Communications)

This year, it looks like the broiler industry will produce 8.6 billion broilers and 41-plus billion pounds of meat, for an increase of 3% over 2015. It's one of those situations that makes integrators wring their hands as they try to decide whether to expand and, if so, how much.

On the positive side, there is low-cost feed. "Right now, feed only comprises 60% of live-production costs," reported H.L. Goodwin, University of Arkansas ag economist. There are also cheap petroleum products, which not only help with the poultry companies' expenses but also put consumers in a buying mood.

On the negative side, there is the fresh memory of price drops that occur nearly every other year in the wake of expansion and overproduction.

An unexpected element entered the market picture in 2015, when avian influenza (AI) proved to be a powerful market mover. Foreign buyers, most notably China, put the brakes on U.S. poultry imports for fear of bringing AI into their country. Exports, which totaled 7.3 billion pounds in 2014, dropped to 6.3 billion pounds for 2015. Add to that the normal rise in cold storage supplies in the fall, when broilers do their best growing because of cooler weather. Supplies peaked by October 2015.

"Prices fell out of bed in mid-October," Goodwin recalled. Tenders dropped 10 cents per pound, and boneless skinless breasts were down 20 cents. By March 2016, Goodwin said those same boneless skinless breasts were down 50 cents from September 2015 levels.

A brighter outlook comes on the export side this year, when numbers are expected to recover somewhat to 6.8 billion pounds. In addition, per-capita disappearance for broiler meat at the retail level is projected up to 90.2 pounds from last year's 89 pounds.

Although birds have a much shorter generation interval than pork or beef, allowing for faster response to markets, companies can't just turn off the faucet.

"A parent hen is worth $6, a grandparent hen is worth $60 and a great-grandparent hen is worth $600. You don't make stew out of them," Goodwin said. He added, the companies have fixed costs, and they have to keep the plants running.

TURKET SUPPLIES BOUCNE BACK

Another market impacted by AI last year, turkeys, is expected to see expansion this year, as well. Projections are for a 7% increase over 2015 production levels. This would create 6 billion pounds of product this year, up from 5.6 billion pounds.

Rabobank analyst Will Sawyer said, "Turkeys have definitely come back from their AI issues. Now there are tighter supplies, but in the back half of 2016, turkeys will not be hard to come by."

Exports are projected up this year to 690 million pounds from 532 million pounds in 2015. Per-capita retail disappearance is expected to climb by nearly a pound to 16.5, compared to 15.9 last year.

AI remains a constant threat to all poultry producers, but it has only shown its ugly self once so far in 2016—in Indiana in January.

"The biosecurity responses by producers and the government have worked," Sawyer said. Hopefully, that will bring poultry exports back up to their normal 20% level (of production), compared to 18% last year.

(VM/CZ)