Poultry production cuts stimulate industry optimism
The WATT/Rennier Poultry Confidence Index rose to 94.3, up from 79.0 the previous quarter. Respondents cited production cuts coupled with increased demand as reasons for optimism.
In last quarter’s WATT/Rennier Poultry Confidence Index, there were hints that confidence was going to soon rebound following a historically low first quarter. These positive thoughts did indeed carry over into this current quarter as respondents cited production cuts coupled with increased demand.
The Overall Index now stands at 94.3 (1996 = 100), up from 79.0 the previous quarter. The Present Situation Index held steady at 73.8, an inconsequential decline from 74.2. Finally, the Expectations Index moved from 82.1 the prior quarter to 107.9 this quarter.
This increased confidence is in contrast to the Consumer Confidence Index which has fallen for six consecutive months, now reaching levels last seen during the 2008-09 recession. Consumers expressed concerns about business conditions, the labor market and income prospects.
Production cuts buoy sentiment
The biggest moves in the PCI were in the Future Conditions sub-category (from 64.1 to 122.0) and, not surprisingly, the related Future Profits sub-category (from 89.6 to 104.4). As stated earlier, these positive gains were primarily related to production cuts and expectations for increased demand of poultry both domestic and abroad.
Some specific comments:
• “Volume reductions should be in place and hopefully inventories as well.”
• “Surely the industry will further cut placements.”
• “Hopefully production cuts by the industry will improve markets.”
• “Good domestic market and good prospects for the export market as well.”
There were also positive comments related to poor economic conditions for competitive proteins, the consumer desire for lower-priced poultry and better corn prices, although several mentioned that grain prices remain a wildcard.
Supply/demand and cost concerns linger
Although the majority of respondents were positive, there was still a sizable minority who felt that key market factors were still negative or had not yet improved to a satisfactory level. These indicators included excessive supply, dampened exports and high and unpredictable input costs (primarily grain and fuel). Recent market data lends some support to these concerns as broiler-egg sets have been recently (from October 15 through November 19) on the rise.
Confidence in the poultry industry has improved throughout the 2011 calendar year. After reaching rock bottom in the first quarter of 2011, there has been a steady rise in all the key indicators primarily due to improved market fundamentals – decreased supply and higher demand. However, supply is an evolving target that can change quickly, while high grain and fuel costs continue to depress profits. We can only hope that the positive trends throughout 2011 carry over into the new year.