US poultry industry faces successes, challenges in 2011–2012

Experts discuss feed costs, industry future at National Chicken Council panel

Poultry industry experts discussed the recent past of the U.S. chicken segment and the challenges in its near future at the National Chicken Council‘s 58th Annual Conference industry outlook panel, “The Path Forward,” held on October 11.

See Part 1 of the panel here. 

Poultry companies did very well in 2009 and 2010, leading to industry growth, according to panelist Michael Popowycz, vice chairman and CFO for Case Foods. But 2011 was a different story. “Bird weights went up and it caused many of the problems we had in 2011,” said Popowycz. “The oversupply coming in from 2010 into 2011 caused sales prices to drop significantly. At the same time, corn prices in 2011 jumped about $2.50 a bushel. Soybean meal prices jumped about $50 a ton.” These costs added roughly $0.08 per pound to live production costs in 2011. Sales prices dropped and live production costs rose in the summer of 2011. There were several bankruptcy filings, and several other companies were sold. “The industry had to create additional cash, and the only way to create cash is to cut your inventories,” he said.

Panelist Thomas Hensley, president of Fieldale Farms, said he agrees. “2011 was a perfect storm for us,” he said. “Couple that with a bad economy: our food service customers sold less chicken, our grocery store customers sold less chicken, so we sold less chicken.”

Even so, 2012 began as a good year. The first two quarters of 2012 were very good, according to Popowycz, with the industry performing well in first six months. “The crown jewel of the industry is wings,” he said. “We saw wings go from roughly a $0.75 average in 2010 to maybe $1.50 to $1.60 a pound. Wings are everywhere. Wings are carrying the industry right now.”

Once the Midwest drought hit in late June, however, the poultry industry faced new challenges. Corn jumped $3 in two months, and soybean meal rose $175–$200 per ton. Those costs added $0.08–$0.10 to lot costs compared to where farmers were in May. Now, profitability in third quarter is still good, but declining with higher costs. “Lower seasonal prices are here coupled with high feed prices,” said Hensley. “$400 feed and $1.10 boneless breast doesn’t work.”

Looking ahead, said Popowycz, “I would expect with our normal seasonal declines that September, probably October we’re going to start to incur some losses in the industry. The sales price simply won’t be there to cover the live costs.”