The U.S. chicken industry may become unprofitable in the fourth quarter because feed costs have surged as a drought wilts cornfields across the Midwest, said Koch Foods Inc. CEO Joseph Grendys.
“Costs have gone up so much due to the drought that the industry will be forced to get price increases of 10 to 15 percent across all product lines” for 2013 over this year, Grendys said, reports Bloomberg BusinessWeek.
Koch Foods is starting to talk to customers about 2013 prices. Koch expects to sign one-year supply contracts with clauses allowing for quarterly adjustments according to grain costs, Grendys said. The last time the company sought quarterly adjustments was in 2008, he said.
While demand for Koch’s chicken products is “extremely strong,” uncertainty caused by the drought is leading the company to analyze its sales against the cost of raising chickens, Grendys said. The industry has reduced production costs over the last decade and can’t count on lower input costs in the future, he said.
“The industry needs to be smart” and focus on pricing to ensure it remains profitable, he said. Even if it does become unprofitable in the fourth quarter, the industry may resume making money after the first quarter of 2013, he said.
Source: Bloomberg BusinessWeek