Source:  Rita Jane Gabbett, MEATINGPLACE.COM, 10/6/09

The future for the poultry industry looks partly cloudy in the near term giving way to more sunshine in the future as current pricing challenges are met with continued production discipline, cheaper feedgrains and a search for more export markets, according to analysts who attended last week's National Chicken Council meeting in Washington D.C.

"Near-term trends are challenging," wrote Stephens Inc. analysts Farha Aslam in a note to investors. "But chicken producers are cautiously optimistic." She noted balance sheets have improved from a profitable summer, adding, "A few players with better balance sheets expressed an interest in looking at assets that might come up for sale, reflecting a fair degree of confidence in industry profitability in 2010 and beyond."

BB&T Capital Markets analyst Heather Jones agreed. "The mood was considerably more positive than a year ago," she wrote. "And, by and large, industry participants expect a much improved, profitable operating environment once near-term seasonal issues are worked through."

Near-term challenges

Near-term challenges are nothing new — weak foodservice demand, retail competition from pork promotions and uncertain exports top the list.

Jones quoted KFC CEO Roger Eaton as predicting another 12 months before consumer spending strengthens meaningfully. Foodservice sales are expected to decline 6 percent this year and decline 2 percent in 2010.

A number of analysts pointed to the ongoing uncertainty of chicken imports by Russia and China. Aslam said Russia is expected to lower its U.S. chicken import quota for 2010 to 650,000 metric tons from 952,000 metric tons for 2009, but noted the 2010 quota would be in line with the amount that will likely be shipped to Russia this year.

Aslam said the industry is actively seeking to develop new export markets, with some optimism around the Caribbean. She said Africa is also being explored.

In the meantime, BMO Capital Markets analyst Kenneth Zaslow predicted boneless skinless chicken breast prices could fall below $1.00 per pound and leg quarters could fall to the 30s in cents per pound before seasonal recovery in February and March.

Longer-term factors

On the plus side, the analysts pointed to lower feedgrain prices. "Corn and soybean prices are unlikely to increase materially from current levels as the supply outlook remains favorable," predicted Zaslow. One producer named $3 corn as the new benchmark, wrote Jones.

The analysts were also optimistic about continued production discipline.

"The two main breeder suppliers in the U.S. both noted production discipline remains," wrote Aslam. "Notably, one breeder supplier noted that his firm expects total chicken pounds produced in 2010 to be down 2 percent versus 2009, whereas the USDA is projecting a 1.5 percent increase."

For more stories, go to www.meatingplace.com.