Source: Rita Jane Gabbett, MEATINGPLACE, 3/14/17


Near-term chicken margins likely will remain relatively stable with a slight bias to the upside, reflecting seasonally higher cutout values, a muted feed cost outlook, and limited production growth, according to BMO Capital Markets.

February chicken cutout margins increased 8 percent in February, but fell 2-3 percent from year-ago levels. Lower year-over-year margins reflect 1 percent higher cutout values more than offset by 11 percent higher feed costs. Chicken margins sequentially increased in February in part as seasonality contributed to 5-6 percent higher pricing partially offset by 1 percent higher feed costs. Cutout values increased 5-6 percent sequentially, driven by 8-9 percent higher breast prices, 1-2 percent higher legs and 1-2 percent higher wings.

In a report by research analyst Kenneth Zaslow, the firm predicted feed costs likely will remain soft, particularly as the crop harvest accelerates in South America and farmer selling is expected to pick up.

It also predicted cutout prices likely will seasonally increase, particularly with March Madness wing demand, expectations for continued strength in leg quarters, and seasonally higher breast prices as buyers begin to build inventory levels ahead of peak summer grilling season.

HPAI, woody breast
The report noted, however, that the newly-discovered Highly Pathogenic Avian Influenza (HPAI) outbreak in Tennessee’s commercial poultry breeder flock could limit prices, particularly legs, in the near term.

The production outlook remains benign as the breeding flock declined year over year for the tenth consecutive month and chicks placed increased only 120 basis points on a rolling six-week basis.

“We continue to expect 2017 production to increase by 2-3 percent, reflecting some production capacity increase (e.g., SAFM, Peco) and limited shifts from smaller bird sizes to big birds. In fact, we expect muted weight gains as woody breast (associated with overweight birds) issues continue to reduce product quality,” Zaslow wrote.

He cautioned that a soft foodservice market, woody breast issues and ample supplies of competing proteins are expected to pressure breast prices for the remainder of the year. That said, prices should move higher in the near term as buyers return to the market ahead of the peak summer season.

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