Most people are more joyous and jolly during the holiday season. There’s food, gifts and precious time with family and friends. ‘Tis the season for optimism!
This was not the case three months ago when pessimism in the poultry industry was at an all-time high, fueled by ramifications from the 2012 drought.
However, in the fourth quarter 2012 holiday version of the Poultry Confidence Index, the Big-3 indices all showed dramatic improvement:
- Overall Index now stands at 72.8 (1996=100), up from 44.7 third quarter 2012
- Present Situation Index increased to 60.1 from 46.9
- Expectations Index rose to 81.3 from 43.2
Our own Poultry Confidence Index followed recent trends in the Consumer Confidence Index. Consumers were concerned about current conditions, but optimistic about the future. This optimism drove the Consumer Confidence Index to its highest level in more than four-and-a-half years.
Why the renewed optimism in the poultry industry (other than positive holiday feelings)? Our respondents cited several reasons:
- Higher demand for poultry (spring and summer seasons)
- Declines in production
- Falling grain prices (or at least stabilizing)
- Increased prices for poultry products
Even with these positives, many others were still concerned about higher costs, lower prices and razor-thin margins.
There is good reason for these concerns. The poultry industry has only one card to play in the short term — production cutbacks. Demand, grain prices and finished-goods prices are long-term factors outside the immediate control of the industry.
Recent data suggests that the industry has yet to embrace or implement cutbacks:
- Broiler-type egg sets remain equal to a year ago and are experiencing their seasonal increase
- Market weights also are on the rise
One analyst, Heather Jones of BB&T Capital Markets has suggested that integrators will rationalize the status quo and thus avoid cutbacks. She reasons that higher-than-expected pricing coupled with softer-than-expected feed costs will keep integrators from pulling the trigger on cutbacks in the near term.
The holiday season has contributed to a bump in optimism, as have stabilization or slow improvement in key indicators. However, at this time, the incentive for production cutbacks is lacking for many integrators. This inaction could slow or hamper recovery especially if other contributing factors (i.e., poultry prices and grain costs) do not respond as expected.