Source:  Rita Jane Gabbett, MEATINGPLACE.COM, 4/26/10

Typically, when a protein industry has been profitable for a year, production increases; but USDA's Chicken and Egg report released late Friday showed the opposite.

The report showed broiler-type pullets hatched in March fell by 2.4 percent from a year ago. USDA also revised its February figure to a 3.1 percent decline from a year ago, compared to its earlier estimate that pullets hatched rose by 2 percent.

"We cannot recall such a revision of this size in the past," J.P.Morgan analyst Ken Goldman wrote in a note to investors. He also predicted that year-on-year increases in total layers will eventually diminish or turn negative, based on the small number of pullet hatchings.

In March, the U.S. inventory of broiler-type layers rose by 2.1 percent, but the absolute number, at 55.4 million pullets, was down 2.6 percent from the March average between 2004 and 2008, Goldman noted.

Meanwhile, the number of eggs per layer fell by 1.3 percent year-on-year in March, due in part to poor weather and older hens, according to Goldman. It was the sixth drop in seven months and the steepest year-on-year drop since February 2009.

Goldman viewed the report as positive for chicken integrators such as Tyson Foods and Sanderson Farms.

"The longer that the chicken industry stays disciplined with production, the more sustainable today's industry margins can be," he wrote. "With demand increasing and supply poised to remain low at least until the end of calendar 2010 (and probably longer, based on the data in this report), both Tyson and Sanderson potentially can earn higher earnings per share than expected over the next few quarters, at least."

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