Turkey producers see meat prices, feed costs as opportunity to win market share

Turkey producers not only see current high meat prices and feed costs as an opportunity to win market share from beef and pork, they tend to see themselves as the underdog protein that punches above its competitive weight. Perhaps Perdue Foods President Jim Leighton had this in mind when he cited best-selling author Jim Collins' book, "How the Mighty Fall and Why Some Companies Never Give Up," during a panel discussion at the National Turkey Federation convention. Turkey producers are taking aim at the mighty in meat protein market share — especially beef. It was against this economic backdrop that Leighton and fellow panelists identified opportunities for turkey to win market share as pricing and product valuations continue to shift in the meat and poultry protein categories. They pinpointed the need for companies to develop higher-value ground products, strengthen or develop new relationships in marketing channels and increase turkey exports. The panel included executives from the No. 1, No. 3 and No. 8 ranked turkey companies in the United States and the United States Department of Agriculture Agricultural Marketing Service official responsible for commodity procurement. Theirs was not a pollyannaish outlook for turkey but a calculated assessment of market openings at a time when value propositions are in flux and customers and consumers are reevaluating their protein options.

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Turkey producers not only see current high meat prices and feed costs as an opportunity to win market share from beef and pork, they tend to see themselves as the underdog protein that punches above its competitive weight. Perhaps Perdue Foods President Jim Leighton had this in mind when he cited best-selling author Jim Collins' book, "How the Mighty Fall and Why Some Companies Never Give Up," during a panel discussion at the National Turkey Federation convention. Turkey producers are taking aim at the mighty in meat protein market share  especially beef. 

It was against this economic backdrop that Leighton and fellow panelists identified opportunities for turkey to win market share as pricing and product valuations continue to shift in the meat and poultry protein categories. They pinpointed the need for companies to develop higher-value ground products, strengthen or develop new relationships in marketing channels and increase turkey exports. 

The panel included executives from the No. 1, No. 3 and No. 8 ranked turkey companies in the United States and the United States Department of Agriculture Agricultural Marketing Service official responsible for commodity procurement. Theirs was not a pollyannaish outlook for turkey but a calculated assessment of market openings at a time when value propositions are in flux and customers and consumers are reevaluating their protein options. 

Hidden opportunity in the drought  

The ongoing drought, the current 50-year low in cattle numbers and record-high beef prices, according to the panelists, represent an opening for turkey producers. While turkey producers, themselves, must deal with high feed costs, they have a big edge in feed conversion over beef and pork. Plus, when you're the white-meat protein with the lowest per capita consumption, disruptions in consumer purchasing patterns become market openings. 

"There's been a change in consumer preferences and product mix as a result of the higher meat prices, including greater demand for ground chicken," Leighton said. "This shakeup in consumer preferences is a good thing for turkey producers, because it opens the way for greater consumption of newer products such as ground turkey. Once that change begins, I believe it will continue." 

Beef prices to continue to rise through 2014  

Turkey's greatest opportunity may be in winning share from beef, the protein segment hardest hit by current economics. Steve Willardsen, president, Cargill Value Added Meats, the nation's third largest turkey company, described the wrenching economics in the beef business, which have driven down the cattle supply, raised beef prices and reduced consumption. 

"Beef slaughtering and packing is a tough business to be in now," said Willardsen, whose parent company is the largest U.S. feeder/slaughterer of cattle, with Tyson and JBS close behind.  "Everything starts with the cow herd, which has been greatly impacted by the droughts, and now has reached the lowest levels since the 1950s," he explained. "The earliest that feed cattle slaughter can be anticipated to materially increase is 2016.

There will be at least one year of lower slaughter before then (potentially 2013 depending on the corn crop and prices) as the industry has to retain heifers for breeding, pulling them from the slaughter mix." 

Meantime, the price of beef is expected to continue to climb. He presented price projections for heavy choice boxed beef rising to just under $200 per cwt in 2013, and peaking near $206 per cwt in 2014 before settling at around $200 in 2015. By comparison, prices ranged between $140 and $153 per cwt price between 2008 and 2009. Since 2010, prices have steadily increased. 

Beef less frequent in meal rotations  

"The high beef prices are a real opportunity for turkey, particularly for ground turkey," Willardsen said. "We think consumers will begin evaluating the rotation of meats in their meals. Where beef may have fit in the meal rotation twice per week at lower prices, it might now be there only once a week. 

"Even when the drought ends, it will take a number of years for the beef industry to recover. We need to rethink our business models in the turkey business and evaluate how we can move into that gap in beef supply that is almost sure to be there." 

What's next in value addition for turkey?  

Today's product mix in the turkey business makes such a move more feasible than once would have been the case. 

"Twenty years ago, breast meat was the product focus in the turkey business but no longer. The industry now is rooted in dark meat, sausages, meat balls and other successful products," observed panel member Russ Whitman of Urner Barry. 

While for now the turkey industry may be capturing additional share in commodity ground meat, the advantage there is likely to be fleeting, according to the panelists. 

Commodity ground meat not turkey's answer  

Is it profitable to produce live turkeys to supply commodity ground turkey? 

"The short answer is that I don't think so," Willardsen said. "We can't afford to grow a turkey for its back half; we have to add value to the other half. Now, what can we do with the white meat of the turkey? What kind of food service application do we have for this amazing white ground turkey? Think for a minute about the amazing white sausage opportunity perhaps on the McDonald's menu along with, say, a cholesterol-free egg product. Low fat, low cholesterol. So the vision is to go in that direction." 

Panelists also expressed doubt that turkey processors would be able to successfully compete over the longer term in commodity ground meat. Rex Barnes, associate administrator, Agricultural Marketing Service, for example, noted that low-cost meat from dairy herds and imported beef products are incorporated in ground beef. This gives beef processors an important cost advantage that would be difficult for turkey processors to overcome. 

Turkey has opportunities with further processors  

Barnes also sees opportunity for the turkey industry in supplying further processors who purchase bulk meat proteins to be made into foodservice items for schools and institutions. 

"These are often smaller, niche processors, producing specialty items. Most of their items are made with ground beef or ground chicken, but they are open to using more turkey. In fact, they frequently complain that they can't get an adequate supply of ground turkey. I think that has to do with the integration in the industry and how much product is available to those type of processors," he said. 

Supplying further processors with more turkey has a potentially important benefit beyond the added sales.  These processors play an important role in making meat protein available in school lunch programs, which shape future consumption.

Barnes said, "What schools serve and how it is served sets those kids' tastes for what they want to eat in their adult life." 

The timing is opportune for selling more turkey in the School Lunch Program, he said. "Beef prices are going up, while schools are on very tight budgets. They will be looking at beef prices and asking themselves whether or not they can serve as much beef as in the past. If they can purchase something more cheaply, they may order more of that instead of the beef," he said. 

Make turkey exports an industry priority  

With the future growth in meat proteins consumption to come mostly from markets outside the United States, the U.S. turkey industry needs to make exports a priority, the panelists said. 

Rod Brenneman, CEO, Butterball LLC, described quantitative and qualitative goals for increasing the industry's international business. "While the industry reached a new record in exports last year, we have to continue to grow exports. The U.S. pork industry exports almost double the amount on a basis of percentage of production as does the U.S. turkey industry. Reaching a similar level of turkey exports should be our target as an industry. 

"We have to grow international markets for U.S. turkey not just with commodity products but with higher-priced, value-added products. There are many premium markets around the world, and that is a great incentive for us to open and develop those markets for U.S.-produced turkey," he said. 

No stereotyping of turkey in international markets  

Turkey has some unique challenges and opportunities in international markets. "One of the troubles that the turkey industry has been faced with domestically is the stereotyping of turkey," Willardsen said. "But since Thanksgiving is an American holiday, this stereotyping for the most part does not exist internationally. It's a problem that we don't have to spend our money overcoming in international markets. This is one reason I think the opportunity for turkey in international markets is probably greater than ever." 

 However, turkey is little known in many international markets, which poses its own marketing challenge. "Outside the U.S., turkey meat is viewed in much the same way the way that U.S. consumers might view ostrich or lamb meat. The industry needs to educate customers and consumers in many international markets on how to use turkey," he said. 

Weather trumps opportunities in 2013  

Turkey producers at work on the long-term opportunities might be spurred on by Jim Collins' advice: "Whether you prevail or fail, endure or die, depends more on what you do yourself than what the world does to you." There is, however, a short-term factor not under their control   the weather, which will have a great influence on the corn and soybean crops and feed costs in 2013. Turkey producers will need to stay focused on their long-term objectives whatever the economic circumstances. 

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