Poultry production cuts pay dividends for companies
The Poultry Confidence Overall Index stands at 119.8 for the first quarter of 2012, up from 94.3 the previous quarter.
Although there were certainly more tangible reasons for a recent renewal of optimism in the poultry industry, a mild winter and thoughts of spring certainly did it no harm. The Poultry Confidence Index, which had steadily risen throughout 2011 after hitting rock bottom a year ago, rose dramatically in this first quarter of 2012. The Overall Index now stands at 119.8 (1996 = 100 baseline), up from 94.3 the previous quarter. The Present Situation Index increased to 101.8 from 73.8, while the Expectations Index rose to 131.8 from 107.9 since the fourth quarter of 2011.
All indices top baseline
This was the first time since the second quarter of 2010 that all three of the leading indices topped the 100-point baseline. In addition, four of the five sub-indices also topped this milestone, with the fifth – Present Conditions – not far off pace (95.5). Optimism extended to both the broiler and turkey industries, especially the former, which has steadily shown positive change in each of the last five quarters.
Why all the good news? Primarily because of several changes in market dynamics that serve to balance supply and demand:
- Egg sets are running five percent to six percent below year-ago levels due to contraction of the breeding flock
- Total protein availability – beef, pork and chicken – is expected to drop 3.2 percent to the lowest level since 1991
- Since August, cold storage supplies have declined each month with a substantial year-to-year drop in December of 21.6 percent
Recovery for chicken industry
All in all, these positive changes have led one analyst – Deutsche Bank’s Christina McGlone – to predict that operating margins for the chicken industry have recovered and are currently running approximately $0.05 per pound. This is indeed good news and a sure sign that efforts to reduce supply are paying off.
In addition to these individual efforts by integrators to restore profitability, many of our respondents were encouraged by an improvement in the general economy.
The Consumer Confidence Index – which is a leading indicator that formed the basis for our Poultry Confidence Index – supported these feelings. According to Lynn Franco of The Conference Board, “Consumer confidence … posted a sizable improvement in February … Consumers are considerably less pessimistic about current business and labor market conditions … despite further increases in gas prices, they are more optimistic about the short-term outlook for the economy, job prospects and their financial situation.”
Our own data supports these findings as 56 percent of our respondents felt they would be financially better off in 2012 than in the previous twelve months.
Integrator efforts to reduce supply have started to pay dividends as many companies are now in the black. This has blossomed into positive feelings for many regarding their own economic and job prospects. The reduction in breeding stock should hopefully extend these positive changes into late 2012, if not beyond.