Source: Susan Kelly, MEATINGPLACE, 12/15/17


Chicken margins will exceed historical averages for the foreseeable future but likely have peaked and will gradually decline in 2018, reflecting modest yet consistent production expansion and some softening of demand, one Wall Street analyst predicts.

Feed costs are neutral with an upward bias, and the industry faces “pockets of demand issues including lower NFL viewership, menu changes, and the anniversary of promotional purchases,” BMO Capital Markets analyst Kenneth Zaslow told clients in a note following a weaker-than-expected fourth-quarter earnings report from Sanderson Farms.

Zaslow said he would not be surprised if the industry production run-rate were to accelerate above 2 percent by the second half of 2018 due to ongoing capacity additions, abating hatchability issues, and yield improvements.

Sanderson Farms CEO Joe Sanderson Jr. forecast overall growth in chicken industry pounds of 9.7 percent between 2019 and 2021 as new plants come on line.

The recent decline in NFL ratings and menu changes have dampened wing demand. Further, the chicken industry will face difficult comparisons in the summer from chicken strip menu additions from McDonald's, Wendy's and Sonic.

Another complicating factor is record beef and pork supplies, which likely will compete with chicken for promotional activity, Zaslow said.

Mizuho Restaurant and Proteins analyst Jeremy Scott, in his own report to clients, said investors should expect a volatile period ahead and fluid estimates as the market weighs the probability of tax reform, where Sanderson Farms would be a key beneficiary, against the backdrop of capacity risk, NAFTA and La Nina.

“Expect recent pricing weakness to linger into the first half of calendar 2018 as heavy red meat volumes are set to flood the trade and will likely pressure volumes across competing proteins,” according to Scott, who added he was surprised by the strength of cattle placements and liquidation of the herd in recent months.

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