By Dr. Thomas Elam

This article is not about a certain business rating organization. Rather, herein BBB is “broiler building boom.”

For the first time in several decades multiple companies are planning significant investments in new broiler complexes to increase the number of birds raised and processed. Why now?

Historically, broiler production grew at 3-4% per year. That rate slowed to more like 2% over the past decade. On the surface, the BBB would seem to point to a resumption of the 3-4% range. That may or may not be true.

Changing live production practices are likely driving this sudden interest in building new complexes and will offset additional birds coming to market.
These include:

1. The move to remove routine antibiotic use has progressed to about half the sector. The results are predictable. Death losses have ticked up and end weights are increasing slower.

2. Several companies have announced plans to use slower growing birds. The result is either harvesting at lighter weights, more days in the grower house or both. Feed conversion is also likely to suffer.

3. Demand continues to grow, creating the incentives for more supply.

4. Coming down off high feed costs in 2008-2013 to a lower and more stable plateau has created added expansion incentives, and likely absorbed any slack capacity in current growout and processing capacity.

In 2015-2017, two companies added three major complexes of about 65 million birds per year each. Six companies have recently announced expansion plans totaling about 460 million birds per year. That number does not include the re-opening of the former Townsends Siler City, N.C., operation, which is announced, but with few available details.

Last year’s slaughter was 8.92 billion birds, so the announced plans are about a 5.2% increase in bird capacity spread over three years, 2018 into 2020. It may take time to get all the new complexes up to full production, but this is a significant increase in potential bird numbers.

Between 2000 and 2017 broiler production increased 36.6%. Average bird weight increases were critical to that expansion. Broiler numbers increased only 7.9%, while average Ready-To-Cook (RTC) weight grew 26.6%, over three times as fast. Almost all the weight increase was from increased average daily gain (ADG), up 22.9%. Thus, the weights increased almost without the need for more days on feed, largely eliminating the need for more growout barns and bird processing capacity. Increased bird performance was a very low-cost avenue to increase production (Figure 1).

1. 2000-2017 RTC production growth and contributing factors[i][ii]

2000-2017 RTC production growth and contributing factors

ADG progress since 2010 is shown in Figure 2.


2. Broiler average daily gain[iii]

Broiler average daily gains

The 2017 data point is preliminary, but shows a decline that is consistent with the slowing of average RTC bird weight increases shown in the next graph. Average weight increases, by far the major contributing growth factor, are slowing down. Increases are highly variable, but 2016 and 2017 saw very small gains compared to most prior years. Reduced antibiotic use and changes to slower growth birds would argue that slower weight growth will persist, and weights may even trend lower in future years (see Figure 3).

3. Year-over-year increase, FI RTC weight[iv]

Year-over-year increase, FI RTC weight

Finally, according to National Chicken Council estimates, broiler death losses have crept up over the last few years. This is consistent with reduced antibiotic use and requires more birds placed in a barn to produce a given amount of chicken (see Figure 4).

4. Broiler death losses[v]

Broiler death losses

In summary, the net effect of the added bird capacity in the coming “BBB” will be muted by industrywide ongoing changes in live production practices. Industrywide slowing bird growth rates, slower increases in average weights, and higher death losses will partially offset increased bird capacity from new complexes. More birds than in the past will likely be required to meet demand-driven growth of the U.S. broiler sector. Expect even more bricks and mortar expansion announcements in the next few years. The required construction that is needed to offset less expensive productivity improvements will add to overall broiler production costs.

Companies making the decision to add bird numbers are likely betting that declining ADG increases will drive the need for more birds. If ADG increases do resume at 2010-2016 historic rates we would likely see a temporary over-supply condition until demand catches up with the 2017-2020 BBB.

EDITOR'S NOTE: Dr. Thomas Elam is president of FarmEcon Llc.

[i] USDA, National Agricultural Statistics Service, Poultry Slaughter and Poultry Production
[ii] National Chicken Council, written communication from Agri Stats.
[iii] FarmEcon LLC calculations based on National Broiler Council statistics, http://www.nationalchickencouncil.org/about-the-industry/statistics/u-s-broiler-performance/
[iv] USDA, National Agricultural Statistics Service, Poultry Slaughter and Poultry Production
[v] National Broiler Council, http://www.nationalchickencouncil.org/about-the-industry/statistics/u-s-broiler-performance/