Past, present and future were all discussed at the International Poultry Expo's Market Intelligence Forum, held on January 30. Three speakers discussed the current struggles affecting the industry, the factors that led up to those struggles, and what the industry will be facing in the future.
Michael Donohue, vice president of Agri-Stats, first noted the strengths of the industry, in that over the course of the last two decades, live weight has increased, white meat percentage has increased, and the number of field condemnations has decreased. All of this has been done without the fertility problems that the turkey industry has, he noted.
However, he said, “The increase in the feed ingredient costs overwhelms the productivity improvements that we've seen in the last couple of years.” The feed market has been and will continue to be quite volatile, which will continue to cause problems for grain buyers.”There's nothing we can count on now. The consequences of a bad decision, either on the way up or on the way down, are magnified now.”
Another problem, he pointed out, was that supply and demand had been thrown out of alignment. Production increased to well over 900 million tons of chicken per week in the fall and is just starting to decrease. At the same time, demand was soft due to the economy and feed prices were high. Donohue called the situation a “perfect storm,” noting that processors couldn't increase their sales prices as they have done in the past when feed costs grew.
“The good news,” he said, “is the industry is bringing supply back in line with our perceived demand.” The bad news is that the demand may drop further. “We might actually see a drop in per capita consumption in this industry for the first time in a long period of time.” Consumers who typically switch from beef and pork to chicken may have to bypass chicken in favor of beans, rice and other cheaper meals.
Tom Elam, founder of FarmEcon, also reviewed what went wrong for the poultry industry in 2008 (“just about everything”) and discussed the impact of ethanol on the industry. The federal RFS (renewable fuel source) mandate is 10.5 billion gallons of ethanol in 2009, increasing to 15 billion by 2015.
“But the value for ethanol in the marketplace has been reduced by low oil prices,” Elam said. “Ethanol was selling close to $3 per gallon at its peak, and last week it was $1.60. At the same time, they're having to pay the same high corn prices that everybody else is.” He pointed out that 27 ethanol plants in the country are idle, and the remaining operating facilities can barely meet the RFS mandate.
Still, ethanol has created a new plateau for corn, Elam said, adding that the days of $2-per-bushel corn were gone. Even with a strong corn crop, prices are still between $3.50 and $4 a bushel. Without ethanol, he said, the price-per-bushel of corn would probably be closer to $2.50. Similarly, prices for sorghum and other feed materials are linked, and they have increased as well.
Ethanol production under the RFS mandates will require an additional 650 million bushels of corn this year, Elam said, and overall corn acreage isn't likely to increase. He said that corn prices aren't likely to rise dramatically like they did in 2008, but with corn prices now tied to oil prices, any change in energy supply could have repercussions elsewhere.
To recover their costs, Elam concluded by telling processors they must cut production as well as reduce their cold-storage inventories, which are at near-record levels. “If you need a 5% reduction to get your prices up, you might also need another 3% or 4% to get these inventories down by the end of next year,” he said.
Dr. Paul Aho, founder of Poultry Perspective, gave a global outlook for the poultry industry. Poultry, he pointed out, is a luxury item, which is not often considered within the industry.

“I think we may even see lower consumption for chicken” in 2009, he added. “I think we'll see a higher consumption of eggs as people shift from beef and pork to eggs and chicken to eggs.” He pointed out to examples in recent history when consumer consumption of protein declined in a country-wide recession.

Aho broke the world's population into five segments. The wealthiest group, with an annual salary of $26,000 or more, will eat less beef and pork in a recession and more chicken. The other groups will eat less meat protein of all types and may eat more eggs as a cheaper protein source. “A world recession will see a net drop in chicken consumption,” he said.
Moving forward, Aho said that companies need to look at globalization. He said there were three options to deal with it. They can outsource, or find companies who can do things better than they can; insource, or do certain functions for other companies, or consider offshore production.

“But you need to examine every part and every function of a particular company, determine what it is you do well, and then decide what can be done better by other companies and other countries,” he said.