October 25, 2010

Oversupply and price pressures may force-cut UK chicken output

Excess supply, pressure on prices and onerous feed costs will force UK chicken producers to cut production to avoid becoming unprofitable, according to analysts.

Producers on average will remain profitable through early December, when high corn costs will begin to be felt, analysts said.

"The bottom third to half of the industry will likely lose money beginning in December. Hence, chicken production cuts, first in the form of weight reductions, will have to happen," analysts said in a report.

As higher feed costs squeeze profits, a pullback in weights will be felt in the first quarter of 2011, analysts predicted.

After taking a tumble, breast meat prices have stabilised only temporarily as Russia takes shipments until November 1, and leg quarter prices are on the decline, with Russia pressing some suppliers for downward revisions to earlier pricing.

Analysts noted that weekly slaughter data show a 3% to 4% yearly increase in recent weeks, while egg sets are running 5-6% higher since Labor Day.

Meanwhile, analysts also said that the beef and pork markets look fairly tight into 2011, but the supply pipeline in chicken will also weigh on the pork market, whose profitability will get worse before it gets better.