Source:  Lisa M. Keefe, MEATINGPLACE.COM, 10/11/10

The USDA expects that rising feed costs will prompt poultry producers to rein in their plans for increased production in 2011, according to the agency’s quarterly World Agricultural Supply and Demand Estimates report.

This, following a period of production increases: In the same report, the agency boosted its estimate for broiler production for the current year.

USDA now expects broiler production in 2010 to be 36.04 billion pounds, a 2.6 percent increase over 2009. For 2011, on the other hand, USDA cut its September projections by 248 million pounds. Industry analysts now project that broiler production will run 1.8 percent ahead of 2010, at 36.678 billion pounds.

The report, combined with a significant cut in corn crop estimates, took their toll on poultry stocks. Tyson Foods Inc. closed trading Friday at $15.01, down 7.75 percent for the day, while Sanderson Farms closed a $39.52, down 4.7 percent for the day.

Indeed, Heather Jones, equity analyst for BB&T Capital Markets, noted in a memo to investors, that “chicken margins will be very challenged over the next six months. Unless producers pull back and reduce the size of breeder flocks, profitability will be challenged for even longer.”

She went on to predict, though, that producers will respond quickly to the changes in the market. “The overall industry has not been in the black long enough for balance sheets to have been fully repaired,” she observed. “Also, higher feed costs, which are likely to move higher after the report today, have just begun to make their way into the P&L of producers. Once the impact of higher feed costs and lower prices are truly appreciated, we expect a relatively speedy reduction in production.”

A lingering concern in the near term for Jones is an apparent boost in egg sets, which would indicate the potential for an oversupply of poultry over the holidays, which traditionally is a slow sales period.

Meanwhile, export expectations remain healthy. USDA projected 2010 exports at 6.47 billion pounds, 5.1 percent less than in 2009. For 2011, USDA expects exports at 6.650 billion pounds, 2.8 percent more than this year’s quantity.

Tyson CEO Donnie Smith saw a good year for the industry in 2011. Speaking on a panel at the annual meeting of the National Chicken Council in Washington, D.C., he said, "If we look to ’11 ... some pundits out there talk about a dramatic oversupply but it doesn’t feel that way to me."

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