US poultry industry foresees oversupply, lower efficiency

Although U.S. poultry industry optimism about current conditions remained high during the third quarter of 2016, expectations for future conditions and profits took a tumble, according to the WATT-Rennier Poultry Confidence Index (PCI).

A potential supply/demand imbalance is a primary driver behind concerns over future poultry industry profits. | tashatuvango, Bigstock.com
A potential supply/demand imbalance is a primary driver behind concerns over future poultry industry profits. | tashatuvango, Bigstock.com

Although U.S. poultry industry optimism about current conditions remained high during the third quarter of 2016, expectations for future conditions and profits took a tumble, according to the WATT-Rennier Poultry Confidence Index (PCI).

The Overall Index now stands at 120.7, down from 142.9 during the second quarter of 2016 (100-point baseline = 1996). The Present Situation Index fell slightly to 168.0 from 180.1, while the Expectations Index declined to 89.2 from 118.0.

Consumers are following a similar path. July 2016’s Consumer Confidence Index showed that “consumers were slightly more positive” while expectations “declined slightly” based on business and labor conditions as well as concerns over personal income prospects.

Concern over future oversupply

The biggest change in the Poultry Confidence Index over the second quarter of 2016 was a downturn in expectation about future conditions and future profits as both dropped below the 100-point baseline.

Oversupply was the primary reason cited for a weakening of future conditions. As one respondent noted, “(We’re) waiting on a surplus of total meat to roll through, especially pork and imported beef. Chicken egg sets are still too high.”

A potential supply/demand imbalance was also the primary driver behind concerns over future profits. A recent report from Rabobank suggested that a steady 2.5 percent per annum increase in overall protein supplies would most likely not have an immediate impact, but they did “expect the profit environment by the end of 2018 to look very different than it does today.”

Poultry-Confidence-Index-Q3-snaphot

This third quarter's outlook for future profitability dropped to a four-year low at 76.3.

Inefficiencies with antibiotic-free production

Some respondents also blamed reduced profits on inefficiencies associated with an increase in antibiotic-free production. One respondent said, “[The] move to antibiotic-free broilers is causing a lot of live-production problems. Weights, daily gain, feed conversion and mortality are all being impacted negatively.”

Interestingly, future opportunities remained above baseline levels even though both future conditions and profits did not. Expansion, retirements and the need for new skills and expertise (e.g., ABF production and VFD regulations) were the key drivers.

Finally, it’s worth noting no respondent mentioned the term “avian influenza” in this latest assessment. Although AI once dominated the "chatter," it never dealt a serious blow to overall confidence.

Summary

Confidence metrics remained high, although there was a marked downturn in perceptions for future conditions and profits. Balancing supply with demand, while accounting for increases in domestic pork production and beef imports, can positively impact future assessments.

 

Read more by Greg Rennier: 

www.WATTAgNet.com/authors/1641

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