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Chicken industry not likely to cut back much: analyst
Story Date: 11/23/2012
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Source: Rita Jane Gabbett, MEATINGPLACE, 11/21/12
The chicken industry is operating about breakeven due to higher than expected pricing and softer than expected feed costs, making large production cuts unlikely, according BB&T Capital Markets analyst Heather Jones.
“Stronger and larger operators likely remain in the black, and given pricing that has held up better than expected, large cuts are unlikely to materialize over the short-term,” she wrote in a note to investors.
With chicken processing margins stuck around breakeven for some time now, not much has occurred from a supply rationalization standpoint, according to Jones. She noted this year’s price strength has come even at a time when seasonal declines are typical and in the face of higher bird weights and lackluster exports.
“We believe the price strength has been somewhat supported by trade over from competing proteins and larger takeaway at foodservice from increased featuring activity,” she wrote.
However, even as beef and pork prices are expected to move higher, she cautioned against expecting a pronounced shift over to chicken to continue as featuring and promotion decision can change quickly, as can consumer tastes and preferences.
She also expects corn and soybean meal prices to move higher, “as we do not believe that current usage rates can continue going forward.”
In terms of supply rationalization, Jones said some is occurring, but is being offset by growth elsewhere. “Notably, egg set levels in states along the mid-Atlantic/Northeast corridor have seen large declines lately, and we wonder if less efficient retail producers are cutting supply, given a lackluster move in Georgia Dock pricing.”
Large producers like Tyson, however, are showing optimism without cutbacks. Tyson recently reported better than expected fourth quarter earnings, in part due to strength in its chicken segment.
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