US poultry sector needs more output cuts to improve margins

Chicken demand is not expected to improve significantly before 2010, therefore US poultry producers may need to further cut production in order to improve margins.

 

Despite lower grain prices, chicken processing margins have averaged just 3 cents per pound since January. While that is an improvement from the negative margins from a year ago, it pales in comparison to the 7-cent margins in the same period of 2007, according to Stephens Inc. analyst Farha Aslam.

 

Corn and soy prices fell 17 percent and 10 percent, respectively, in the recent quarter, Aslam said.

 

As a result, Sanderson Farms said it expects to reduce feed costs by US$129 million from a year ago.

 

However, demand has declined alongside grain prices, which prevented profits from flowing to processors.

 

Todd Simmons, President of Siloam Springs-based Simmons Foods, said there is lower demand in the foodservice customer base, and the company has adjusted bird weights to ensure their production meets the needs of the customers.

 

Sanderson Farms also recently said it may be well into 2010 before US consumers really returns to restaurants so chicken market improvements would have to come from supply cuts.

 

Sanderson Farms has reduced production by processing smaller chickens and has its plants running below capacity, while Tyson is not planning further cuts after reducing output by 5 percent in December.

 

The National Chicken Council said production this year is 7-percent lower from last year in terms of overall slaughter.

 

Production cuts measured by egg sets output declined 7.2 percent each week of the quarter ending December, said Aslam. Last week, egg sets fell 6.9 percent on-year.

 

The general industry inventory is falling each month, and with the current production cuts, inventories should decline to more favourable levels  - down 12 percent in the last three weeks, Simmons said.

 

Wholesale prices remain mixed, with whole bird prices averaging 85 cents per pound, up 10 cents on-year.

 

Tyson Foods said recently that consumers are buying more whole birds and hamburger meat, shunning boneless chicken breasts and steaks.

 

Wing prices have increased and are expected to remain high throughout the next month for the NCAA Tournament, said Richard Lobb, spokesman for the National Chicken Council.

 

Wholesale boneless, skinless breast prices averaged US$1.20 per pound this month, down from US$1.35 a year ago, while leg quarter prices have dropped to 35 cents per pounds from 40 cents a year ago.