Source: Susan Kelly, MEATINGPLACE, 7/5/19


Profitability across the U.S. poultry industry is under pressure as meat prices decline amid growing supplies, bringing to mind the last major downturn a decade ago, which resulted in severe financial losses for the sector, CoBank said in its latest Poultry Outlook.

The U.S. chicken industry has responded to an unprecedented run of profitability since 2012 with a significant increase in production capacity. Six new processing plants are expected to be operational by 2020, the bank said. The new capacity is coming online in the midst of continued supply expansion among competing animal proteins.

Yet the industry is now more responsive to demand, while also enjoying strong balance sheets following years of healthy profits, making the outlook for the next downturn in the chicken cycle much brighter, CoBank animal protein economist Will Sawyer wrote in the report.

Why things are different this time

The five-year period through 2012 represented a “dark age” for the poultry sector as more than a dozen chicken companies changed hands and industry profitability tested historic lows more than once.

Today, however, improved industry pricing is the biggest structural shift in chicken production, the analyst said. Producers are able to more quickly pass on changes in feed costs and therefore manage earnings profitability.

Feed costs have moderated significantly from the pre-2012 period. However, a labor shortage in chicken processing has increased non-feed production costs in recent years. Still, the steady level of inflation is far more manageable than the extreme volatility of a decade ago, CoBank noted.

Strengthened capital structures should also improve the outlook for chicken companies. Today’s chicken producer has almost as much cash on hand as debt on the balance sheet and is therefore far more resilient to any downturn in prices and margins, the bank said.

The sector has also become more nimble at adjusting supply to meet demand, giving export markets time to reopen and profitability to rebound, CoBank said.


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