Poultry industry confidence high despite profit concerns

Sustained optimism was diminished slightly by concerns for reduced profits. However, several experts have suggested that the economy can absorb near-term supply/demand projections and should have little-to-no impact on short-term profits while expansions projected a positive radiance across the industry.

AleksKey, Shutterstock.com
AleksKey, Shutterstock.com

The poultry industry is currently experiencing the longest wave of optimism since the inception of this column over 20 years ago. Confidence has been well above normative levels for nearly three consecutive years.

Conditions, opportunities and profits have all three played an important role over this time. These trends have generally paralleled the Consumer Confidence Index, which continues to improve as consumers “overall remain optimistic that the economy will continue expanding into the summer months” (Conference Board, May 2017 report).

The Overall Index now stands at 133.8, down from 144.0 last quarter (100-point baseline = 1996). The Present Situation Index climbed to 171.0 from 169.4, while the Expectations Index fell to 109.0 from 127.1.

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Poultry industry confidence has remained well above standard levels for nearly three consecutive years. 

The decline in expectations followed a spike the previous quarter after hovering near, but consistently below, the 100-point normative level. Thus, current expectations are quite good (above norm) and better than in all recent quarters except the last.

If there was a negative issue, our respondents cited a potential decrease in profits due to increased production, an increase in competition and record-high profits that seemingly have nowhere to go but down.

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Confidence in the turkey industry recovered after falling the previous years, sitting slightly lower than confidence in the broiler market. 

Some felt that antibiotic-free production (ABF) contributed to lower profits by increasing costs. Others thought it might constrain production as producers potentially struggle with lower efficiencies, especially during the initial start-up phase.

Although our respondents were concerned about production levels, two experts recently suggested that projections were sustainable. One said, “chicken pricing fundamentals are very strong as supply is coming in tighter than expected and demand is strong given a recovery in export markets” (Rita Jane Gabbert, meatingplace.com, April 10, 2017) and “lower weights, lower hatchability, robust export demand and a wing shortage should support strong chicken margins for the foreseeable future” (BMO Capital Markets in a report from 12th annual Farm to Market Conference).

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Awareness of high-profile expansions in the poultry industry buffered the concerns of many in the industry. 

Finally, widespread awareness of high-profile expansions by Butterball, Mountaire Farms and Sanderson seemed to buffer the concerns of many. Although regional in nature, these expansions produced a halo effect spanning the industry.

 

Read more by Greg Rennier: 

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