Home » Chicken merchandisers face high costs in 2013
Chicken merchandisers are facing an uncertain future. Record high feed costs during the second half of 2012—and at least for the first half of 2013—make any predictions about the chicken business more difficult and precarious than usual.
And although the presidential election is behind us, there remains much uncertainty about the economy, government programs and policies.
Before 2006—when annual chicken consumption peaked at 87.7 pounds per person—there was an attitude among merchandisers that chicken’s favorable value equation with consumers would help insulate it from the vagaries of a soft economy.
But recent years’ experience has proven that equation and attitude to be somewhat incorrect.
The U.S. Department of Agriculture, like in 2012, is calling for a modest decrease in chicken production in 2013. Never in the history of the chicken industry has there been two consecutive years of negative production adjustments.
A number of industry analysts, meanwhile, see a much more dramatic drop in chicken production in the New Year. And such a situation is not just unprecedented and painful, but it would be unnecessary if there was an appropriate federal government energy policy, especially for corn-based ethanol.
And it is it not just the chicken sector that is experiencing production declines.
Pork production is likely to pull back a percent or so in 2013, while beef’s downward adjustment may approach 5 percent.
With the decline in the combined production of beef, pork, veal, and lamb—and with exports of red meat staying steady or increasing in 2013—per capita consumption of red meat will be less than 102 pounds per person next year, the lowest consumption level since the 1930s, the USDA projects. Combined meat and poultry consumption will be less than 200 pounds per person on average in 2013, the first time it will be below 200 pounds since 1990.
If the USDA’s forecast for a 1-percent or so decrease in chicken production in 2013 proves correct, what can be expected for the composite broiler price?
A modest increase in the wholesale price will not begin to offset the double-digit percentage increase in feed costs.
If, however, chicken production is down 3 percent or more, as some analysts predict, will a double-digit percent increase in the wholesale price of chicken be enough to offset and cover record high feed costs? Will consumers continue to make chicken their meat of choice with the price of retail chicken, especially boneless/skinless breast meat, on a new and higher plateau?
In addition, weather conditions also are having a major effect on the chicken sector.
Although the Corn Belt was long overdue for a significant drought, few, if any, weather forecasts had called for the extreme dry weather conditions experienced throughout the entire major corn-growing region this past summer.
As a result, the tight corn situation last year was just a modest prelude to the devastation this year. Despite the twice-in-a-century drought in 2012, the federal government policy is to continue to pursue a goal of energy security at the clear risk of jeopardizing food security.
Forcing corn to be used to manufacture ethanol through the Renewable Fuel Standard—leading to higher feed costs—is another demonstration of the government’s inflexibility and the difficulty of bringing common reasoning to a crisis situation.
Governors and the livestock/poultry interests petitioned the U.S. Environmental Protection Agency (EPA) to grant a waiver for the Renewable Fuel Standard for ethanol. The EPA is requiring that 13.8 billion gallons of ethanol be blended into gasoline in 2013, no matter what the consequences.
While a very strong argument is made that the federal government should not force corn to be used for fuel when there is a severe shortage of corn, an adage comes to mind: “You cannot wake someone who is pretending to be asleep.”
Animal agriculture, meanwhile, is going through “demand destruction,” with poultry and livestock levels, including reproductive animals, being reduced.
As a result, there will not be normal demand for corn in 2013 from U.S. animal agriculture if there is an abundant crop. Corn producers, thus, will have to count on a robust export market to provide stepped-up demand.
How the chicken merchandising sector will look in 2013 will depend on such factors as feed costs and volatility; the strength of consumer demand, especially at foodservice and in response to price levels perhaps not experienced before 2013; the dynamics of the U.S. dollar; foreign consumer demand in world markets; the size of the hatchery supply flock; competition from other proteins; and a number of other significant factors unknown at this time.
Editor's Note: This article originally appeared on www.perishablesbuyer.com, a BNP Media, sister site of ProvisionerOnline.com.