Source: MEATINGPLACE, 7/17/15

Growing chicken supplies are creating significant pricing pressure, suggesting earnings have peaked for the average producer in the current profit cycle, BB&T Capital Markets analyst Heather Jones said this week.

Combined with record large pork production, “there is a lot of meat sloshing around,” Jones wrote in a note to clients.
Broiler production is up 4.7 percent for the year to date, based on monthly data, while pork production is up 6.6 percent, Jones said.

An abundance of leg quarters is weighing on the dark meat market, and the pressure is unlikely to ease soon, she said. “Leg quarter prices are abysmal and a number of producers are simply rendering product,” Jones noted.

The strong dollar and avian influenza concerns have hurt exports, although broiler demand has been relatively strong thanks to improved retail and foodservice featuring.

Feed costs likely hit a bottom in the middle of the second quarter, and most producers appear not to have substantial feed coverage in place, she said.

Jones said no significant moderation of supply, baring another avian flu outbreak, or sizable new demand driver is on the horizon.

“We do foresee margin deterioration going forward, as we expect continued pricing pressure and higher feed costs will begin to roll through,” the analyst predicted.

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