November 5, 2004

 

 

US Chicken Industry Sees Increased Production for 2005
 

After two years of slow growth, US chicken producers are increasing flocks by about 4 percent compared with a year ago. This move has been attributed to low feed costs and strong consumer demand. Industry experts predict more growth next year.

 

There are mixed reactions as to whether this is good news to chicken companies like Tyson Foods Inc. and Pilgrim's Pride Inc.

 

"While profit margins are not great, they are at a level that gives companies some confidence to do a bit more. Next year, I think we will see 4, maybe 4-1/2 percent," according to Bill Roenigk, vice president at the National Chicken Council, commenting on the increased production.

 

Corn prices have fallen 30 percent or more from early this year. Soymeal prices have declined even more as US farmers harvest record large corn and soybean crops. Corn and soymeal are major ingredients in feed and comprise a large share of production costs for chickens.

 

"We have broiler prices coming off 5 to 10 percent, so do the math, it is still going to be fairly profitable for poultry producers," said Harry Baumes, managing director for agriculture for Global Insight, an economic consulting firm.

 

Tyson Foods is the leading beef producer and a large pork producer, besides being the largest chicken company in the country. Large supplies of chicken in the market could have an impact on industry sales of beef and pork.

 

"As chicken prices fall from the increased supply, consumers should eat more chicken and less beef and pork," said Jonathan Feeney, food industry analyst with Wachovia Securities, in a recent research report.

 

Pilgrim's Pride is the No. 2 chicken producer and does not produce beef or pork. However analysts are cautious on the company's future earnings with low chicken prices expected.

 

"The company's feed input costs should help earnings by about $2.00 per share at current market levels. However, if chicken prices decline more than 5 percent, this would be more than offset," said David Nelson, food analyst at Credit Suisse First Boston, in a recent research report.

 

Pilgrim's Pride will report fiscal fourth-quarter earnings on Monday, and analysts on average expect 82 cents per share, rising from 5 cents a year ago. Much of that gain includes the poultry operations it bought last year from ConAgra Foods Inc.

 

Tyson will report fourth-quarter earnings on Nov. 15, with analysts on average expecting earnings of 16 cents per share, down from 42 cents a year ago, according to Reuters Estimates. Much of that drop is being attributed to expected poor earnings in its beef sector.