Six economic factors boosting poultry sector confidence
Any one of these six economic factors could improve the U.S. poultry industry’s outlook, but when all six occur at once we see a record-setting Poultry Confidence Index.
Wow! Amazing! Grand slam! Those are just a few of the ways to describe this quarter’s WATT/Rennier Poultry Confidence Index. (Take the new survey.) On many levels, confidence in the poultry sector has never been higher since this tracking tool was launched 16 years ago.
The Overall Index now stands at 140.6 (1996=100), up from 119.8 last quarter. Not since 1996 has it been this high!
In addition, all five sub-indices (see Top-line Confidence Trends graph) – led by respondents' expectations – exceeded the 100-point norm for the first time since 2005. Cumulatively, these were the five highest scores ever.
Six ways poultry sector confidence is boosted
Combining the insights of Poultry Confidence Index respondents with a recent Poultry Quarterly Report from Rabobank International, following is a list of six ways confidence is being boosted in the poultry sector (in no particular order):
- Reduced supply – Given the commodity nature of the poultry industry, decreasing supply will often improve prices and profitability. Year to date, pullet placements in the broiler sector are down 4 percent. Furthermore, cold-storage supplies of boneless, skinless breast meat are currently 13 percent below year-ago levels.
- Increased domestic demand – The flip side of supply is demand. Several respondents noted that “summer weather and grilling chicken goes hand-in-hand.” Although the expectation for an increase in seasonal demand may or may not pan out, it contributes to positive thinking.
- Growth in exports – Always a dynamic situation, respondents were encouraged by an “import ban lifted to EU.” The U.S. had a record year in poultry exports in 2011, with exports to Asia, Africa and the Middle East more than compensating for reduced exports to Russia.
- Lower input costs – Survey participants expect “a record corn crop that could moderate feed prices.” Recent reports have supported this expectation. Since feed accounts for approximately two-thirds of the cost of broiler production, small decreases in feed prices can dramatically boost the bottom line. Falling gasoline prices are an added bonus.
- Decreased risk – Rabobank reports that recent “industry’s losses were magnified by long-term fixed price contracts that were not hedged … many of these contracts have expired and have been replaced with deals linked to feed prices, allowing chicken companies to share risk with their customers." Thus, many integrators should no longer have to shoulder the entire burden if grain prices unexpectedly rise.
- Expanded jobs and facilities – In the presence of positive economics, companies hire and build, remodel or expand facilities. Several respondents pointed to these renewed activities as the basis for their optimism.
This list is not exhaustive. Any one of these six could improve the industry’s outlook on its own, but when all six occur at once we see record-setting Poultry Confidence Index numbers.
A word of caution
Although economic confidence is now high, the outlook could weaken in late 2012. A recent Livestock, Dairy and Poultry Outlook report from the USDA hints that broiler meat production could rise later this year due to improvement in corn and soybean prices as well as expansion in the general economy. We can only hope that integrators will show restraint to sustain long-term profitability.
Be part of the survey!
Join the Poultry Confidence Index panel and receive advance reports of survey results. Take the survey: https://www.surveymonkey.com/s/G3VH5F2