FEED Business Worldwide - August, 2011
US Poultry: Dark meat & inventory run downs fatten profit margins
by Eric J. BROOKS
The US broiler industry is having a good, though not great year. Over the short-term, a cloudy trade picture is being counterbalanced by improvements and transformations in America's domestic broiler demand. However, the industry's long-term competitiveness is completely at odds with any short-term trade difficulties it is presently enduring.
Roughly in line with both growth in the US population and exports, the USDA estimates second quarter poultry production to be up 1.4% and total 4.2 billion kg. However, end of April broiler stocks totaled 318.5 million kg, up 16 per cent from the previous year and 20.7 million kg or 7% higher than March's level.
This rise in inventories however, is mostly due to lower demand from two of America's largest export clients, China and Russia. Even so, higher demand elsewhere and higher international broiler prices have partly counterbalanced the resulting dent in export volumes.
Trade-wise, the USDA hiked its broiler meat export forecast to US$4.9 billion, up 6.29% from 2010's 4.61 billion. Despite this being US$100 million more than previously forecast, the increase in broiler export value is mostly due to higher broiler export prices. - It actually masks a reduction in projected export volumes. Broiler meat export volumes of 2.96 million tonnes in 2010 are now expected to rise 1.35% to 3.0 million tonnes, slightly less than 3.1 million tonnes projected earlier.
Recession, demographic changes boost dark meat consumption
The more interesting story however, lies in unexpected changes underway in the structure of America's domestic broiler demand. Traditionally, American consumers have shunned dark broiler meat such as wings or drumsticks and favoured white meat broiler parts such as chicken breast.
US consumers have endured a 3 year recession and depression-level unemployment. With 44.2 million Americans on food stamps, at least 20% of America's population to severely cut back on food purchases. At the same time, working Americans have been forced to redirect some of their spending away from meat to pay for higher energy and transport expenses.
However, while the recession caused US red meat consumption to fall, its per capita poultry consumption jumped from 43kg in 2009 to a USDA-estimated 45kg this year, a two year rise of 4.6%. Multiplied by the US population growth rate, this means that despite falling disposable incomes, US poultry consumption has risen at an average 3.7% rate over the last two years.
These economic stresses have changed both the volume and type of poultry being consumed. Tight budgets are inducing America's notoriously red-meat eating consumers to eat more poultry. However, budgets are also tight enough to make a large demographic within America's population turn away from white broiler meat to less expensive and bonier dark meat parts.
For example, combined chicken drumstick and thigh sells for approximately US$0.50/pound, compared to US$1.00/pound for boneless chicken breast. Processed dark poultry meat lines such as chicken sausages are seeing similar unexpectedly sharp rises in demand.
In its mid June Livestock and Poultry report, the USDA reports that this change in US broiler eating patterns has caused poultry part prices to move in different and unusual directions. It states that, "Prices of boneless/skinless [white] breast meat in the northeast market, at 1.31/pound, were also lower, falling 21% from May 2010. However, prices have risen for a number of leg [dark] meat products. Prices for leg quarters averaged 49.6cents/pound in May, up 30% percent from a year earlier. Boneless/skinless thigh [dark meat] meat prices in May also were higher than the previous year, climbing 43% to $1.35/pound."
Moreover, there are factors at work that ensure that even when the recession ends, Americans will not completely switch back to previous levels of white chicken meat consumption. Altin Kalo, analyst at Steiner Consulting, notes that dark poultry meat is favored by America's Asian and Hispanic communities, which are responsible for a large part of the US's population increase. With much US population growth coming from ethnic minorities that favour darker, bonier poultry, these trends could restructure America's broiler eating consumption.
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