August 2, 2011
US poultry producers suffer as poultry product exports wither
The US chicken industry is now declining as China and Russia reduce imports and increase their domestic supplies, leaving a lot of meat piling up in the US.
For years, the US chicken industry has boosted profits by selling white meat to Americans, who eschew darker cuts, and exporting tonnes of thighs, legs, and feet to China, Russia, and Mexico, where consumers are less fussy.
Compounding the pain for producers such as Tyson Foods (TSN), Sanderson Farms (SAFM), and Pilgrim's Pride (PPC), feed costs are rising and bird prices have fallen. With production increasing as the big players jockey for position, investment bank Stephens says processors are losing an average of US$0.12 on every pound they produce this year. Since last summer at least two producers, Townsends and Allen Family Foods, have filed for bankruptcy. "It's a bloodbath out there," says Tom Elam, president of consultancy FarmEcon in Carmel, Ind. "The industry has a real problem. Its export potential has dropped, and production is up."
Since the 1970s, Americans worried about fat have eaten ever more chicken breast. Today white meat accounts for roughly two-thirds of the chicken consumed in the US, according to the National Chicken Council. That puts a premium on white meat: In July boneless, skinless breasts cost US$1.47 a pound wholesale, while legs ran US$0.46 a pound, government data show. Dark cuts have long been "perceived as a lowbrow food," says Melissa Abbott, an analyst at consumer researcher Hartman Group.
Beijing last year imposed tariffs on American chicken in retaliation for duties the US placed on Chinese tires. That helped send exports to the mainland in 2010 plunging by 85%, to 103,485 tonnes, according to the USA Poultry & Egg Export Council. In Russia, sales took off in the early 1990s when President George H.W. Bush authorised shipments as economic aid—earning US chicken the moniker "Bush legs." Now, Moscow has cut import quotas for poultryas the government tries to wean the country from imported food. US chicken exports to Russia fell 55%, to 331,540 tonnes, last year, the Poultry & Egg Council reports. Total US chicken exports will fall 3.3% this year, the US Agriculture Dept. predicts.
To make up for the lost exports, market leader Tyson has started adding dark meat to some of its nuggets, chicken patties, luncheon meats, and pizza toppings. The company, which says it makes roughly 20% of its chicken sales overseas, is trying to cool Americans' ardor for white meat by shipping more thighs to retailers for the summer grilling season. "I don't want to just sell breast meat, tenders, and wings in the US and have to export everything else," Donnie Smith, Tyson's chief executive officer, said. "Being able to generate demand for dark meat items is a key focus." Smith also said he aims to raise more birds in Brazil, India, China, and other foreign countries for sale in those markets.