Source:  MEATINGPLACE, 7/8/11

Declining egg sets should translate into poultry production cuts soon but heavier bird weights may mask most of the headcount reduction through the end of the summer, a Wall Street analyst said.

The industry is in the early stages of supply rationalization, and recent declines in corn prices are not enough to stop those efforts, BB&T Capital Markets analyst Heather Jones said. Reduced hen holding periods and smaller pullet hatchings are further evidence of rationalization.

White meat prices have weakened after the July 4 holiday as is typical, yet breasts and tenders are down 20 percent from a year ago, she noted. Leg quarter prices are also down.  At the same time, bird weights are up 3 to 4 percent from a year ago.

“We believe it is imperative that the industry continue to reduce slaughter levels going forward, in an effort to return profitability to the sector,” Jones wrote in a note to clients.

Chicken outpaces corn
Chicken price declines have outpaced the pullback in corn prices, further hurting producer margins, Jones said. She estimated spot producers are losing an incremental 2-3 cents per pound more than before the commodity price decline. Jones added she does not expect soft commodity prices to remain at such levels for long.

Demand for chicken was soft in May and June due to continued weak export volumes and a tough U.S. foodservice environment, Jones said.

CME Group analysts said broiler companies are finally reducing output due to the weakness in leg quarter prices, which fell to $44.38 per hundredweight last week from $51.15 the week of June 10. Breast meat prices also continued their decline, reaching $121.55 per hundredweight, their lowest level since February, the analysts noted in the Daily Livestock Report.

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