THE outlook for global poultry production is improving, according to a recent report from the Rabobank Food & Agribusiness Advisory group.
Highly competitive protein markets and falling feed prices should inject some additional profit potential into the industry.
"The global industry is benefiting from improved global market conditions, although significant regional differences exist," report author Nan-Dirk Mulder said. "Companies operating in markets with a well-balanced supply/demand situation, such as the U.S., are expected to benefit from these positive developments. However, the likes of Russia and South Africa are still suffering from oversupply, driven by structural changes in market conditions."
While chicken prices have, generally speaking, trended upward over the past year, competing proteins have gained ground as well, with beef prices hovering near record retail levels.
Both the chicken and pork industries see the final quarter of 2013 and 2014 as an opportunity to steal market share from beef producers, assuming that consumers will balk at paying big money for steaks.
Although the overall outlook for U.S. poultry production is expected to remain positive, Rabobank analysts conceded that the rapid recovery of Mexico's domestic poultry production, combined with its decision to allow Brazil access to its markets, should be of concern to U.S. exporters. Similar recoveries are expected in other regions affected by avian influenza outbreaks, including Asian markets such as China and Thailand.
"In this environment, we expect industry consolidation to continue," Mulder said. "Many producers are currently in better shape than in recent years, and further consolidation could help local industries to better balance local markets."
Mulder speculated that consolidation could take the form of regional cross-border consolidation, which has proved successful in Europe, or global consolidation between companies from low-cost, grain-surplus countries in the Americas and companies from grain-deficient countries such as China.
Rabobank's report, released last month, cites the U.S. as a fairly well-balanced market.
Even so, the U.S. Department of Agriculture moved last week to rectify an imbalance in the market for frozen drumsticks and thigh quarters, announcing the purchase of $50 million worth of product.
In a letter to USDA, National Chicken Council president Mike Brown pointed to a significant buildup of dark meat chicken parts in cold storage and asked for a "timely purchase" to help even out the white meat to dark meat imbalance in the marketplace.
USDA's announcement was hailed by the industry and the hunger relief community, because much of the planned purchase will likely be directed to federal nutrition assistance programs, including those that serve food banks.
"Feeding America food banks are struggling to meet ongoing record levels of need throughout our nation. This substantial purchase of protein is greatly needed," said Bob Aiken, chief executive officer of Feeding America, a network of more than 200 member food banks. "We want to stress how very important it is that Congress and USDA work together to provide adequate amounts of food and funds for the purchase and distribution of federal commodities."
The start of football season means that demand for chicken wings should remain strong for the next several months. On the other hand, the end of picnic season means less interest in drums and thighs.
Last week's poultry slaughter through Thursday tallied 157,676 lb. of ready-to-cook chicken, with an average slaughter weight of 5.64 lb. per bird. For the year, ready-to-cook volume totaled 24.36 million lb. through Sept. 12, up from 23.61 million lb. through the same period of 2012.
Chicken prices were steady to firm last week, with decent retail and foodservice demand. Wing prices trended higher, although prices for breast and dark meat were weaker at the end of the week.
The Georgia dock price for broilers for last week's trade was unchanged at $1.0625/lb., compared to just 95.75 cents on Sept. 12, 2012. Breast prices were up 1.5-2.5 cents for the week, drums and quarters were steady and wings were up 0.5 cent/lb.
Broiler-type eggs set for the week ending Sept. 7 were up 5% from last year, at 195 million eggs. Placements of 165 million chicks were up 3% from the comparable week in 2012, with cumulative placements through Sept. 7 at 5.95 billion, up 1% from last year.
In its September "World Agricultural Supply & Demand Estimates" (WASDE) report, USDA raised its 2013 chicken and turkey production estimates slightly based on the strength of production and hatchery data to date. The agency revised its 2014 forecasts lower, however, assuming that soybean meal prices will move higher and dampen expansion plans in the sector.
USDA now expects 2013 chicken production to total 37.809 million lb. and turkey production to hit 5.925 million lb. Looking at 2014, USDA projects chicken production of 38.750 million lb. and turkey production of 6.055 million lb.
USDA's estimate of 2013 average chicken prices is 98 cents to $1.00/lb., down from a range of $1.00-1.03 last month. Its projection of 2014 prices is weaker still, at an average of 89-97 cents, with prices viewed as firming in the second half of the year.
Turkey prices were mostly steady to firm last week, with frozen Grade A basted equivalent processor offering prices on a national basis at 97 cents to $1.05/lb. FOB for hens and at 97 cents to $1.07 FOB for 16-24 lb. toms. Trade in tenderloins was steady, with demand for the balance of white meat parts somewhat lighter.
USDA trimmed its estimate of turkey prices for the year by a cent to 98 cents to $1.00/lb., and now expects 2014 prices of 95 cents to $1.02/lb. for the year.
In the egg markets last week, prices were 3 cents lower on larger sizes while steady on medium sizes, marking a second week of falling prices on moderate to heavy offerings relative to current demand.
The total shell egg inventory as of Sept. 9 was 1,058.2 cases, up 1.7% from the previous week. Inventories increased for larger sizes but fell 1.2-2.8% on small and medium-sized eggs.
In WASDE, USDA maintained its 2013 egg production estimate of 7.924 billion doz. but lowered its 2014 estimate by 20 million doz. to 8.015 billion. As with its chicken forecast, USDA assumed that higher soybean and meal prices would hinder egg production growth prospects.
USDA raised its 2013 egg price estimate slightly to $1.19-1.21/doz. and held its 2014 projection steady at $1.07-1.16.
Beef prices slipped last week, with the Choice cutout hitting $193.85 last Thursday, down more than $2 from the previous week. Offerings and demand were both described as moderate, although trim firmed late in the week on news that lean, finely textured beef was making its way back into the U.S. school lunch program, at least in a handful of states.
Slaughter cattle prices ranged from $122 to $125/cwt. last week on a live basis, more or less steady with the previous week. The steer:corn ratio continued to improve as corn prices stayed near $6/bu. in the western Corn Belt.
USDA raised its 2013 forecast for beef production last week, with second-half production increases more than offsetting first-half sluggishness. The agency specifically mentioned stronger cow and bull slaughter numbers as contributing to its estimate of 25.599 million lb.
USDA still projects 2014 beef production to fall and now estimates annual production of 24.15 million lb. It did not adjust its 2013 or 2014 steer price projections, pegging 2013 at $123-126/cwt. and 2014 at $126-136.
In comments on the report, USDA noted that ranchers are expected to keep more cattle on pasture and winter wheat for placement early next year, although second-half marketings and early-year cow slaughter will be at least somewhat offset by a small reduction in carcass weights.
While USDA did not mention the zilpaterol situation as a factor, it did highlight the uncertainty over the beta-agonist in its most recent "Livestock Outlook" report.
Pork prices slipped somewhat last week, with the pork cutout averaging $96.55 for the week, down 6 cents from the previous week. Last Thursday, a cutout value of $96.62 was $1.06 lower than the weekly high set Sept. 11.
For cash hogs, the eastern Corn Belt weighted average base price of $90.89 was slightly higher, and the western Corn Belt average was up sharply to $94.92, a gain of more than $5 for the week.
In WASDE, USDA raised its 2013 hog production forecast due to heavier average carcass weights and held its 2014 production estimate steady at 24.135 billion lb. USDA now calls for 2013 average prices to be $62-64/cwt. and 2014 prices to be $58-62.