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Chicken industry’s profit cycle has got legs: analyst
Story Date: 6/12/2013
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Source: MEATINGPLACE, 6/11/13
It looks like the good times will continue to roll for the chicken industry in 2014, thanks to constraints on the breeder flock and declining grain prices, one Wall Street analyst is forecasting.
May was the U.S. chicken industry’s most profitable month ever, says Stephens Inc. analyst Farha Aslam, who recently hosted poultry producers at an investor conference. Chicken pricing has improved rapidly due to strong demand and tight supplies in the United States and Mexico. Specifically:
Breeder companies do not have the product available to increase the pullet flock. It will likely take the industry 12 to 18 months to expand, Aslam said. Sanderson Farms noted that industry egg sets are capped at about the 203 million range, just above the current level of 202.6 million. Mexico could take as long as a year to replace their flocks due to Avian influenza, which means U.S. production could be increased in November 2014. However, given seasonality, the industry will likely hold off increasing production until January 2015.
Increased feature activity in both retail and foodservice, due to high beef prices, is driving U.S. demand, she said. A number of quick-service restaurants rolled out new chicken products this spring. In addition, exports have been strong.
Pricing has been strong enough to overcome high feed costs. In the second quarter, broiler prices were up 10.8 percent, boneless skinless breasts were up 36.6 percent and leg quarter prices were up 2.8 percent, while wing prices were down 23.6 percent.
The upcoming harvest should lower feed costs. The current corn crop is 91 percent planted and is rated 63 percent good to excellent.
Mexico is experiencing a rise in consumer purchasing power and strained domestic poultry supplies due to Avian influenza. Pricing in Mexico is up 73 percent from last year and is currently trading near record levels at $1.35 per pound.Aslam raised her investment rating on Tyson Foods to overweight from equal-weight and her price target to $30 per share from $26, predicting strong chicken fundamentals will offset mixed trends in pork and beef.
She raised her fiscal 2013 earnings estimate for Pilgrim’s Pride Corp. to $2.00 per share from $1.40 and her fiscal 2014 estimate to $2.08 from $1.45. She raised her price target on shares of Pilgrim’s Pride to $20 per share from $13.
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