Last quarter's report ended with the following statement: "there are several factors that could swing the market negatively if they materialize to any significant degree." It appears these disruptive factors have emerged.
The Poultry Confidence Index (PCI), which had declined the previous quarter, fell further during the fourth quarter of 2007. The Overall Index now stands at 74.2 (1996 = 100), down from 109.7 the previous quarter. The Present Situation Index decreased from 150.5 to 119.1. The Expectations Index declined to 44.3 from 82.5. This latter figure was one of the lowest reported since 1996.
The poultry industry is not alone. The Consumer Confidence Index has declined for four straight months, fueled primarily by "volatility in financial markets, rising prices at the pump and the likelihood of larger home heating bills this winter" (Lynn Franco, director of the Conference Board Consumer Research Center).
There were several reasons that poultry experienced such a sharp decline this quarter rising energy costs, escalating grain prices, increased production and declining prices. A few verbatim comments from respondents will help explain the situation: "Grain and fuel costs are increasing, while poultry prices will stay constant or fall." Another response: "Prices are deteriorating, supply is excessive, and fuel costs are soaring." And finally, "Feed cost continues to increase, and the market is expected to weakenproduction levels appear to be increasing."
There is ample evidence to support all these claims. Everyone has seen the price at the gas pump lately. In my area, diesel fuel went up 50 cents per gallon during the month of November. Feed costs have been over $200 per ton for most of 2007 and were recently 37 percent higher than a year ago. Broiler egg sets have been running approximately 4 percent higher the last few weeks with one week up over 8 percent! And finally, Georgia dock prices for whole breasts fell below 80 cents recently the lowest level during 2007 and the first time prices were equal to year-ago levels. Prices during the first half of 2007 were a minimum 40 percent higher than the previous year and kept many producers in the green who would have otherwise suffered crippling losses.
Bottom line given the rapid increase in egg sets during the fourth quarter, and sustained price pressures in the fuel and grain markets, the industry needs to brace itself for a difficult road ahead.
Future changes in broiler production. Readers of this column may have noticed that we have recently asked an additional question or two each quarter to give us more insight into market happenings. This quarter is no different. For broiler integrators, we asked what changes they expected to make given the recent Russian ban, industry overproduction and high grain prices.
Approximately four in 10 said they do not plan to make any changes. Among the remaining 60 percent, half said they plan to reduce capital spending, while a third said they would reduce or suspend hiring or continue expanding at a slower pace (responses add up to more than 100 percent due to multiple mentions). These findings will have ramifications for suppliers and those seeking career changes.
Trends in turkey mortality. We asked respondents in the turkey sector if they had experienced increased mortality during 2007 (vs. 2006) and why. Among the 43 percent who said they had experienced increased mortality, two-thirds identified poult quality and cellulitis as the primary culprits (once again, responses add up to more than 100 percent due to multiple mentions). Another 50 percent cited leg problems while a third said mortality had increased due to the loss of drug approvals.