Oil prices have soared to record high levels of over $125 per barrel in recent weeks. Partly because of the energy and farm policies in the USA and the European Union which subsidize biofuels production, coarse grain and oilseed prices have also risen to near record levels. In early May, the USDA estimate for the nation's corn in storage as of September 1, 2008, was reduced to 412 million bushels, or less than a three week supply. The upward pressure on prices for grains, oilseed meals and feed grade fats continues to mount.

In May, Dr. Thomas Elam, president, FarmEcon, LLC, projected the average 2008 Central Illinois corn price at $5.25 per bushel, 50 percent higher than last year and 119 percent higher than two years ago. Elam projects the average 2008 prices per ton for soybean meal, meat and bone meal, and grease at $325, $340 and $650, respectively. Ingredient costs of this magnitude would result in feed costs for broilers and turkeys in 2008 nearly double what they were just two years ago.

USA broiler and turkey operations are reacting to this unprecedented feed cost situation in a number of ways. Reduction in bird placements, closing high-cost facilities, consolidation of companies, changes in growing programs and changes in rations have all been undertaken by some poultry companies in response to high feed costs. Companies are also looking for other ways of coping with these high feed costs, because the consensus seems to be that this is one time that "what goes up, may not come back down."

Cutting placements

Earlier this spring, four broiler firms announced cutbacks in chick placements. Pilgrim's Pride Corp., Fieldale Farms Inc., Simmons Foods Inc. and Cagles Inc. announced placement cuts of 5 percent, 5 percent, 6 percent and 4 percent, respectively. Collectively, these four firms process 28.3 percent of the nations broilers on a ready-to-cook basis, according to the February 2008 WATT PoultryUSA Top Broiler Company Survey. These companies' announced cutbacks would reduce the weekly ready-to-cook volume of the industry by 1.42 percent. In late April, Tyson Foods, Inc., announced that it would not cut back its chick placements. No other broiler companies have made public statements about placement levels.

Year-to-date USDA chick placement data through May 3 show that cumulative broiler chick placements were 1.2 percent higher in 2008 than in the same period last year. But, for the four-week period ending May 3, chick placements were 2.1 percent lower in 2008 than in 2007.

Through early May, no turkey companies had publicly announced cutbacks in poult placements. But industry sources report that some operations have made significant reductions in placements as part of restructuring and realignment programs. Year-to-date USDA poult placement data through March 2008 show poult placements are 1 percent higher than in the same period in 2007. But, in the month of March, poult placements were 1 percent lower in 2008 than in 2007.

Closing inefficient operations and consolidation

Pilgrim's Pride Corp., has announced that it will close its chicken processing complex in Siler City, N.C., and six of its 13 U.S. distribution centers. Pilgrim's Pride has also announced that it is evaluating its El Dorado, Ark., complex for possible closure.

To explain these moves Clint Rivers, president and CEO, Pilgrim's Pride, said, "Our company and industry are struggling to cope with unprecedented increases in feed-ingredient costs this year due largely to the U.S. government's ill-advised policy of providing generous federal subsidies to corn-based ethanol blenders. Based on current commodity futures markets, our company's total costs for corn and soybean meal to feed our flocks in fiscal 2008 would be more than $1.3 billion higher than what they were two years ago."

Tyson Foods announced the closure of its Wilkesboro, N.C., poultry cooked product plant. The facility produced an oven-roasted line which is being discontinued.

Two medium-sized turkey companies have been acquired already this year. Cargill Value Added Meats purchased some of the assets of Willow Brook Foods, the nation's sixteenth largest turkey processor. Willow Brook's slaughter and cooking plants in Springfield, Mo., will be closed. Cargill will take over former Willow Brook further processing facilities in Springfield Underground and Albert Lee, Minn. Cargill will haul turkeys from former Willow Brook growers to its Springdale, Ark., plant for slaughter. "High feed and energy-related costs have made it difficult for Willow Brook to continue operating," said Mike Briggs, president of Willow Brook.

Hain Pure Protein Corp., which purchased Plainville Farms' turkey operations in August of 2007, purchased Pilgrim's Pride Corp.'s turkey complex in New Oxford, Pa. Pilgrim's was the country's fifteenth largest processor of turkeys in 2007, and it has now exited the turkey industry.

Growing programs

Reductions in chick and poult placements generally result in increased downtime between flocks. According to industry sources, some companies are using the cutbacks to more critically evaluate poor performing farms and are retiring marginal houses as part of their cutbacks.

Sources report that some turkey companies are adjusting the weight that they market birds at in response to high feed costs. The growth rate of heavy turkey hens flattens out as birds age, and some turkey companies are marketing heavy hens at lower weights to avoid a drop-off in feed conversion. Turkey industry sources report that, under normal growing conditions, the growth rate for heavy toms does not flatten out, so most companies are still targeting 40-plus pounds for their heavy toms.

Nutrition and formulation

Demand for corn in the biofuels industry has distorted the old relationship between the relatively high value of protein to the lower value of calories in the diet. Also, the use of feed-grade fats in biofuels has increased fat prices at a greater rate than corn prices. Poultry companies are looking for ways to keep energy levels in rations high without using as much fat in the diet.

Several sources said that many broiler and turkey companies are turning to enzymes, direct fed microbials (DFMs) and probiotic products to help wring more calories out of the feed. Enzymes have been developed to improve the digestibility of even the old standard corn and soy diets, and these can be even more valuable when distillers dried grains with solubles (DDGS) are used in the diet. Aidan Connolly, Alltech vice president, said that some USA broiler and turkey rations are being formulated with up to 10 percent DDGS. Connolly explained that as grain prices have roughly doubled, the return from using many enzymes has doubled as well. He said that poultry companies are moving beyond just using single enzymes like phytase and are looking at multi-enzyme complexes with as many as 25 enzymes all in one product. Connolly said that the severe cost pressure from rising grain prices is pushing poultry companies to move faster in evaluating new enzymes and implementing change more quickly.

DFMs are specified cultures of microorganisms that can improve bird performance. DFMs and probiotics tend to improve gut health and reduce the energy that the bird expends on immune responses, thus lowering feed conversion. The savings derived from the use of these products will also rise along with the rising cost of feed calories.

Lobbying and petitioning for change

Animal agriculture groups, the National Turkey Federation and National Chicken Council included, have opposed the Renewable Fuel Standard (RFS) and the subsidies given for corn-based ethanol at every turn. These groups correctly predicted the negative impact that these government programs could have on grain prices and on the availability of food for human consumption worldwide. Proposals are still being made to Congress asking that these programs be reconsidered. Testifying before Congress recently, American Meat Institute president and CEO J. Patrick Boyle said, "Congressional and Administration leaders should develop and implement a plan to decouple the increasing price correlation of food from fuel. Food to fuel mandates and subsidies have had a profound impact on the meat and poultry industry and its ability to source affordable feed."

Texas Governor Rick Perry filed the first request for a waiver of the RFS with the U.S. EPA to reduce the amount of corn being used to produce ethanol. In a letter to EPA Administrator Stephen L. Johnson, Perry asked Johnson to reduce the mandate by 50 percent. The EPA administrator is authorized by the federal Clean Air Act to grant waivers from the RFS based on economic or environmental harm.