2016 chicken production under control, profitable
With no drought in sight for 2016, lower costs for corn and soybeans are setting a lower break-even price for U.S. chicken producers.
Despite lower broiler chicken prices, chicken supply is under control – expected to rise by 2.5 percent in 2016 – and U.S. chicken producers should be profitable in the coming year.
Speaking at the 2016 Annual Meat Conference, poultry industry economist Dr. Paul Aho said chicken prices are lower than in 2015, but feed and fuel prices are likely to remain low through 2018.
“The supply of chicken is expanding slower than last year. Grain prices continue to be low. The U.S. chicken industry is profitable and will continue to be profitable in 2016,” Aho said.
The U.S. Department of Agriculture (USDA)'s forecast is for a 2.5 percent increase in broiler production in 2016, and Aho thinks it is an accurate – and profitable – projection.
USDA projects a 2.5 percent increase in broiler chicken production in 2016.
“A 2.5 percent increase in broiler production in 2016 should be profitable,” he said. “I think broiler production increases of 2 percent to 2.5 percent are the speed limit for the next several years. If production increases by 4 percent or 5 percent, it would be a danger sign for profitability.”
Lower commodity prices, including grains
The profitable outlook is founded on broad-based declines in key commodities, especially feed grains and energy. The commodity price index has come down from the high of near 185 in 2012 to around 80 in 2016.
Aho is forecasting the average price of corn in Chicago at $3.50 a bushel in 2016 to remain flat in 2016-17 before rising to $4.50 in 2017-18 and $5 in 2018-19.
Commodity prices like that of corn are forecast to gradually rise over the next three to four years.
The price of soybean meal per short ton fell from around $485 in 2013-14 to around $285 in 2015-16.
“The break-even price for profitable chicken production is lower in 2016 due to lower feed costs,” he noted.
While Aho is forecasting a gradual rise in commodity prices over the next three to four years, he warned that the ride may not be smooth in every year.
Deboned breast prices lower but profitable
“Even though the peak price for deboned breast meat will be lower this year at around $1.40 a pound than the $1.60 a pound in 2015, the broiler industry can remain profitable in 2016,” Aho said.
Chicken leg quarters continue in oversupply
Coming off a dismal year for exports of chicken leg quarters – U.S. producers saw chicken leg quarter exports fall by a billion pounds in 2015 – Aho predicts an increase of 250 million pounds of exports of leg quarter exports in 2016. U.S. supplies of chicken leg quarters will continue to rise in 2016, and there’s not much hope for any significant recovery in prices, he said.
“Chicken leg quarter prices started 2015 at 40 cents a pound and dropped to 23 cents. In 2016, leg quarter prices started in the 20s, and it may be a struggle for them to rise to 30 cents a pound this year."
Chicken leg quarter prices – while low – have remained steady in 2015-16.
Chicken wings are a bright spot
Chicken wings are popular with consumers at $2 a pound, and their supply is partly held in check because much of the increase in chicken production is through heavier broiler weights and not entirely increases in bird numbers. There are, after all, only two wings per chicken, Aho noted, so the number of wings produced increases slowly each year.
Wing prices are highly inelastic, and foodservice usage is growing. Wholesale wing prices have risen year-over-year in 2015-16.
Chicken consumption rises with incomes
U.S. per capita consumption of young chickens in pounds has risen substantially since the low in 2012.
Recession, lower median income for U.S. households, and higher chicken production costs and prices were the reason for the decline in 2012. Median income in the U.S. is on the rise and seems to be associated with rising meat consumption.
Chicken profitability still faces headwinds in 2016
Chicken profitability still faces headwinds in 2016. Aho pointed to the same factors faced in 2015:
- Supplies of chicken continue to rise.
- Trade restrictions are still in place.
- The U.S. dollar continues to rise in value.
- The world economy remains weak.
- Oil prices continue to be low undermining demand in key markets.
Breast meat weighs on markets
Rising quantities of deboned breast meat are also a challenge to future profitability. The numbers tell the story as the production of boneless-skinless breast continues to rise:
- Increased number of deboned chickens – 0.4 billion in 1985 to 3.7 billion in 2015
- Increased weight of deboning chickens – 5 pounds in 1985 to 8 pounds in 2015
- Increased yield of deboned breast meat – 15 percent of breast in 1985 to 23 percent of breast in 2015
Along the way, the price of deboned breast in 2010 dollars has fallen from over $4 per pound in 1986 to around $1.15 in 2014. That’s marvelous production efficiency but often slips into overproduction.
Finally, the U.S. broiler chicken industry is profiting from a commodity bubble burst, with corn dropping from $7 to $3.50 a bushel. But, as Aho cautioned listeners at the conference, “The cure for low prices is low prices, and the cure for high prices is high prices. Current low commodity prices won’t continue forever. There will be a moment when commodity prices begin rising.”