July 15, 2010

 

US poultry industry faces challenges despite better profitability

Although the profitability of the US poultry industry has improved considerably, challenges remain as the volatility surrounding the industry seems to be increasing at a faster pace, said Mike Donohue of Agri Stats.

 

Donohue was speaking at the 2010 Financial Management Seminar, held on June 21-23, sponsored by the US Poultry & Egg Association's Poultry & Egg Institute.

 

Donohue examined current trends in the broiler, turkey and egg industries, reminding the group that his theme "A time of Challenges for the Poultry Industry" was essentially a continuation of the past two years.

 

"The industry must recognise that these changes have created a 'new normal' and adjust accordingly. As an example, we need to expect corn prices at US$4.20-4.40 per bushel. Corn may never return to what were traditional levels of US$2.50, since so much of the crop is being diverted to ethanol production and the price is now driven more by speculation than at any time in the past," he said.

 

Carl Blackham of BMO Capital Markets and Anthony Bahr of CoBank discussed bank lending trends. Bahr's statement, "what a difference a year makes" reflected on what he considers improved credit markets for borrowers.

 

Bahr also said, "The US appears to have emerged from recession, but economic growth still is somewhat subdued for this point in the cycle. However, the US is ahead of the EU and Japan in recovery cycle and is poised to lead a global recovery."

 

Blackham acknowledged that 2009 "was the worst credit market in many years, perhaps in our lifetime, but things are showing improvement." He said that merger and acquisition activity, which was at a 15-year low in 2009, has turned the corner in 2010, although the majority of the recent deals are much smaller than in the past.

 

"With cash shown on the balance sheets of investment grade companies currently at 60 year highs, many firms appear to be sitting on the sidelines waiting for just the right deal or waiting for the European financial crisis to be resolved," Blackham said. He noted that markets are generally improving for borrowers and that refinancing opportunities are available, but borrowers should consider refinancing sooner than later.

 

The programme, developed by a committee of experienced industry professionals, also featured updates on domestic and global poultry markets, taxes, an economic outlook, and provided detailed guidance on other industry-specific financial topics.