Source: Rita Jane Gabbett, MEATINGPLACE, 9/14/16



U.S. chicken margins improved in August for the second month in a row and are expected to remain relatively stable, as lower feed costs will likely offset seasonally weaker cutout values at the end of the grilling season, according to BMO Capital Markets.

Production
August U.S. chicken production increased 50 basis points form last year, reflecting 40 basis points higher slaughter and 10 basis points higher weights. Higher-than-expected production likely reflects a slowdown in hatching egg exports, according to Zaslow.

In a report to investors, BMO analyst Kenneth Zaslow predicted U.S. chicken production would increase by 2 percent to 3 percent in 2016 and about 2 percent in 2017, reflecting some production capacity increases at firms including Sanderson Farms and Peco Foods and limited shifts from smaller bird sizes to big birds.

“We expect muted weight gains as woody breast (associated with overweight birds) issues continue to reduce product quality,” Zaslow wrote.

Prices
August chicken cutout values rose by 6 percent to 7 percent from July, reflecting seasonal breast strength. Breast prices rose to a 15-month high, reflecting hot weather-reduced available breast supplies as well as increased foodservice promotions.
Leg quarter prices declined in August for the third consecutive month. Zaslow predicted those prices would remain in the 20 cents to 25 cents per pound range for the foreseeable future, reflecting a lack of domestic and export demand, as well as increased competing protein competition.

Wing prices were up about 1 percent from July but declined by 20 percent compared to a year ago with 60 percent higher year-over-year frozen stocks.

“[Wing] pricing likely will remain relatively steady or increase through mid-October before seasonally declining towards year-end, Zaslow predicted. 

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