The latest Rabobank Poultry Report finds the global market for poultry products challenged by rising consumer prices due to inflation, labor shortages and sharply higher distribution costs. The following is a Q&A with Rabobank Senior Animal Protein Analyst Christine McCracken.
The National Provisioner: With boneless breast prices setting a record high of $3.60 per pound in June, how do sales totals compare with volume sold?
Christine McCracken: June chicken sales as reported by IRI were already seeing the impact of higher prices. Total sales dollars for the month were $1.2 billion (+18.3% YOY), with total volumes down only 0.8% YOY. Consumer demand for chicken is historically far less sensitive to price changes than other proteins and sales of chicken remained relatively strong throughout the month.
The National Provisioner: As broiler exports maintain record levels, how does that play in to overall U.S. domestic supply and prices?
Christine McCracken: Strong U.S. poultry exports will leave fewer total pounds on the U.S. market in 2022, although much of the chicken we export is not center-of-plate items for most U.S. consumers. We have seen a surge in exports to China (+47.7% YOY), yet nearly all of that product (83%) was chicken paws, which are not traditionally consumed in the U.S. in large quantities. Chicken export volumes of 344,000 metric tons were up 15.4% YOY in May, while the value of exports was $452 million (+13.2% YOY). A strong U.S. dollar and rising geopolitical tensions could slow exports, although broiler meat remains one of the most affordable proteins and continues to see strong support. We expect to see very little change in U.S. per capita consumption of chicken in 2022.
The National Provisioner: With U.S. consumers increasingly squeezed by price inflation, how are their purchasing choices/frequency changing? Any bright spots at retail or foodservice?
Christine McCracken: Cost inflation is impacting different groups of consumers differently. In general, we continue to see the slowdown in foodservice from high-end to fast-casual and quick-service, but sales are a little better than we would have expected given current economic conditions and high fuel costs. Consumers continue to look for convenient meal options, and while they may move away from some of the high end dining options we continue to see strong sales through the channel. Chicken also gained some traction on menus as a good value item earlier this year and the channel was able to set pricing for the year. Chicken sales are strong in retail as well. Consumers continue to seek out product on sale, looking for weekly promotions and driving to a variety of stores. There is also a shift from branded products to store brands and a move to less expensive cuts. This has boosted demand for some of the value cuts and may work against sales of chicken breasts.
The National Provisioner: How are rising fuel and input costs impacting U.S. poultry production and distribution?
Christine McCracken: Higher feed, fuel and labor costs are pressuring all segments of the supply chain — with higher diesel costs and driver shortages particularly burdensome in recent weeks. Producers have heightened their focus on managing risk and focused on productivity to offset the costs but ultimately will try to recoup these costs via surcharges or in product costs. Higher labor and fuel costs are impacting most industry suppliers and distributors of product and are most impactful at foodservice. Ultimately these costs will need to be passed through to consumers and could impact future sales volumes.
The National Provisioner: What effect have stubborn labor shortages across the food supply chain had on poultry’s price and availability in the U.S.?
Christine McCracken: Labor continues to be a challenge for processors and is worse in some regions with particularly tight labor markets. For chicken, the primary result has been lower supplies of deboned product and higher distribution expense. This raises prices for some products while depressing prices on others. The net effect is to reduce overall poultry prices and pressuring margins for processors.
The National Provisioner: To what degree has avian flu (both in the U.S. and globally) impacted poultry products’ price and availability in the U.S.?
Christine McCracken: To date there has been very little direct impact on U.S. chicken markets as the number of commercial birds impacted has been minimal. Yet highly pathogenic avian influenza is a global issue and is impacting production around the globe. Losses in Mexico this spring, for example, drove an increase in local chicken prices and a need for larger imports. Likewise the U.S. outbreak of HPAI in turkey has driven a short-term drop in production and constraints on exports. This limits 2H 2022 availability of turkey, which ultimately supports stronger demand for some pork products and exports to Mexico. So very little impact on domestic chicken supplies, but some disruption in adjacent proteins which ultimately may benefit the U.S. chicken industry.
The National Provisioner: What market trends will have the most impact on small- to mid-sized U.S. poultry operations?
Christine McCracken: Many of the challenges faced by small and mid-sized producers are the same issues facing all of U.S. poultry, namely volatile feed and ingredient markets and unpredictable carriers. Smaller operations will need to focus on strengthening supplier relationships to ensure steady deliveries as markets become even more challenging. Counterparty risks will increase as financial conditions deteriorate and companies should be evaluating the financial health of their suppliers and potentially expanding their supplier base to ensure steady supplies. As more independent retail and foodservice companies are under greater financial pressure, this counterparty risk will be an even greater risk for smaller producer/processors.