October 11, 2010

 

Rising US chicken output may lead to excess supply

 

 

US chicken producers are increasing production at such a rate there could be an excess supply this winter when demand is weak.

 

Such an excess could hurt profits or result in losses then for producers such as Tyson Foods Inc, Pilgrim's Pride Corp and Sanderson Farms.

 

Chicken producers are enjoying one of the best years since 2007, but increased production has analysts worried about future profits, particularly with corn prices at a two-year high near US$5 a bushel.

 

The worries about excess chicken heightened this week when USDA reported eggs in hatcheries increased 8% last week versus a year ago. That follows three consecutive weekly gains of 5-6%.

 

Analysts have long expected chicken production to increase in 2011, with at least two plants and possibly three plants coming online. However, the increase is coming sooner than expected.

 

The chicken industry may be seeking to take market share from beef and pork. Supplies of the red meats are down and prices are high, both of which can shift consumers to chicken.

 

Analysts said the limited availability of beef and pork likely will continue to play an integral role in chicken demand and prices.

 

Chicken production has been on the rise after cutbacks in 2008 and 2009. High prices for feed and fuel hurt producers in 2008, and slow meat sales due the recession hurt in 2009.

 

Production may also be rising because Russia, once the largest export market for US chicken, has lifted a ban in place for much of this year because of a disinfectant used.

 

The restarting of the Russian business and optimism for increased sales in 2011 appear to be driving the chicken industry's growth.

 

Restaurants continue to be a weak for chicken and other meats as cash-strapped consumers eat more at home.

 

Two weeks ago, the National Restaurant Association reported a net decline in customer levels at member restaurants during August, but it said restaurant owners expected some improvement in the months ahead.

 

While the recession has hurt chicken consumption, most companies are taking steps to be in position for when sales improve.

 

Sanderson Farms will open a new plant in January. No. 2 producer Pilgrim's Pride plans to restart a closed plant in January, restart another one at mid-year, and possibly a third one in 2012.

 

However, US chicken producers may have to weather several months of excess supply in the market.