One year ago the poultry industry was expressing confidence in its future. A subsequent drought then brought high grain prices. Optimism quickly faded.

Confidence has returned. However, unlike a year ago, the current fundamentals suggest a run of good fortunes rather than a momentary blip.

The Overall Index for the WATT/Rennier Poultry Confidence Index for the second quarter of 2013 now stands at 140.0 (1996=100), up from 113.1 last quarter. The Expectations Index rose to 144.2 from 107.0 while the Present Situation Index increased to 137.2 from 117.2.

Why are these PCI numbers so improved from a quarter ago? We can point to three factors:

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  • First and foremost, most expect this year’s harvest to be big enough to lower and stabilize corn prices.
  • Second, small cattle herds contribute to high beef prices which simultaneously enhance and mask rising prices for poultry in the supermarket.
  • Finally, integrators cannot act on their natural tendency to expand production when costs go down and prices go up as the breeder stock is in short supply until 2014 (including the grandparent stock).

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    The result has been 10 percent higher Georgia dock prices for whole chickens versus a year ago. Prices for boneless breasts were recently 14 percent higher and rising.

    These positive fundamentals –- declining input costs, high prices for poultry meat, growing consumer demand and constrained production –- are why Rabobank has flagged the poultry industry as “good profitability.” Validating this prediction was Sanderson Farms’ mention that “improved market conditions” were responsible for the company’s better-than-expected results.

    All together, these findings strongly suggest that the poultry industry could be entering into a period of high and sustained profitability.