August 9, 2008

US poultry industry's strategy annoys foodservice sector

US chicken producers are taking measures to pass costs to consumers amid slowing meat consumption but the foodservice sector appears to be less than impressed with some implemented moves.

Chicken producers are trying to offset high feed costs by passing on the costs to consumers through restaurants and supermarkets, not an easy thing to do considering the declining consumption due to a slowing economy and inflation.

Restaurants are unhappy with some chicken companies shrinking supply contracts to 90 days from a year. Top US chicken producer Pilgrim's Pride has implemented such contracts to quickly pass on its higher costs for feed and fuel.

Jim Robb, economist at the Livestock Marketing Information Centre, said for two months he have heard consistently from the people who buy chickens for the fast food industry that compared with current cash prices they are not getting realistic forward prices on product.

This resistance seems to be a big reason why prices for breast meat, a key revenue item for chicken companies, are below a year ago at a time when it costs more to produce them.

Average wholesale price for boneless, skinless breast meat was about US$1.32 per pound last week, down from an average of US$1.56 a year ago.

At the CBOT, corn prices for September delivery fell to US$4.94-1/2 per bushel on Friday (August 8, 2008), down nearly 36 percent from US$7.67 earlier this summer.

Shares of top US chicken producers Pilgrim's Pride Corp, Tyson Foods Inc. and Sanderson Farms Inc., have recently moved up due to the lower feed costs. However, the companies are likely to have bought their feed when prices were higher.

The recent grain price decline may have alleviated some of the stress on the poultry companies but they will still be pressurised for at least four to five more months, according to Rich Nelson, analyst at agriculture advisory firm Allendale Inc.

Nelson said the industry is still producing too many chickens and poultry companies need to take more cutbacks in production. Egg sets, which determine future production, are 3-4-percent lower on-year but Nelson said it needs to be 5-7.5-percent lower.