October 30, 2006
US chicken industry faces oversupply situation
Last week as US chicken prices hit seven-year lows in the wholesale markets, analysts are wondering what steps US chicken producers are going to take to rectify the situation.
Although prices have been low at wholesale markets, it has yet to filter down to retail levels, as supermarkets are often slow to pass on wholesale price declines. Still, shoppers may soon get chickens at lower prices too, if the trend continues.
Chicken producers may have to have a more severe cut in production than they anticipated and in some cases, it might even involve plant closures, as once again the market is awash with meat, said Paul Aho, an economist with the poultry industry consulting firm. An oversupply situation occurred earlier this year due to bird flu, which affected sales of US poultry abroad.
The USDA figures show boneless chicken breasts at wholesale were at US$1.19 a pound in Georgia markets down nearly 13 percent from a year ago prices of US$1.34.
Although major chicken companies have announced a cut in production to halt the oversupply, the year-to-date chicken production is still about 2 percent greater than a year ago, according to estimates.
Chicken production would be up about 2 percent for the entire year and up 1.5 percent next year, according to USDA estimates.
While it was true that excess chicken volumes in the early part of the year can be said to be caused by lower demand from international markets due to bird flu, this was not the case this time round, analysts said.
Impending higher feed prices may result in more serious efforts at cutting production, analysts said. If chicken companies want to cut production, they would have to do it quickly, analysts said.
Corn futures prices are up nearly 50 percent since mid-August while soy meal prices are up 16 percent.
A USDA report last week indicate that higher feed prices may be starting to get to producers: the number of eggs set aside to hatch broilers during the week has fallen 3 percent.
