U.S. poultry industry confidence was dampened in the second quarter of 2015 – but remained high – despite the hardships from the avian influenza (AI) situation. Perceptions of future conditions and opportunities were most harmed but remained bullish regarding the profit outlook.
Since the second quarter, optimism has climbed slightly while the previously-positive profit outlook took a downward turn.
The Overall Index for third-quarter 2015 now stands at 124.3, up from 120.0 during second-quarter 2015 (100-point baseline = 1996). The Present Situation Index increased from 152.6 to 165.2 since the second quarter, while the Expectations Index improved to 97.0 for the third quarter from 93.3 the previous quarter.
Rennier Associates | Overall confidence in the poultry industry remained high into the third quarter of 2015 in spite of avian influenza concerns.
Talk of expansion drove a whopping 47 percent increase in the Future Opportunities sub-index, moving from 92.6 in the second quarter of 2015 to a current value of 136.3. Several respondents cited new complexes coming online as well as the industry generally "rebuilding their base business as the market is ripe for expansion."
Expansion was linked to more jobs and a necessary rebuilding of flocks, supported by recent monthly increases of 5 percent to 7 percent in ready-to-cook meat (due to both increases in placements and average weights).
However, this increase in available poultry protein produced concerns about future profits. The Future Profits sub-index fell from 118.6 to a below-normal 82.8 for third-quarter 2015. Some analysts have disputed this claim citing a relatively high retail demand for broilers and a recovering export market.
In addition, several respondents felt profits would also be squeezed by increased pork supplies following a recovery from PED virus crisis and sharp cost increases for insurance, gas and electricity.
These findings parallel the Consumer Confidence Index, which has recently rebounded to become "more upbeat." Consumers are once again feeling optimistic about the near future, especially the labor market. Income expectations, however, were little improved.
In summary, avian Influenza continues to color the thinking of many in the industry, although optimism remains well above normative levels. Many foresee more opportunities, although concerns about profitability were driven by increased supply, greater competition from the swine sector and rising costs. Most analysts, however, predict that the market can absorb these factors and will remain stable into 2016. Let’s hope they’re right.