Three months ago I concluded that the general economic rut had substantially contributed to the woes of the poultry industry. However, I predicted a “light at the end of the tunnel” due to increased profitability as a result of cuts in production. While overall this would be a good thing, it would negatively impact some through closures and hiring freezes.
Every now and then a prognosticator like me gets to be right. The markets are indeed showing signs of recovery. The Consumer Confidence Index “improved considerably in April” to reach its highest level in 2009. This followed months of declines.
As predicted, the Poultry Confidence Index paralleled these general economic findings with gains in each of the top indicators. The Overall Index now stands at 88.1(1996=100), up from 64.4 last quarter and the highest mark since the third quarter of 2007. The Present Situation Index increased to 37.6 from 16.9 last quarter. The Expectations Index rose to 121.7 from 96.0 last quarter.
Another bright spot has been reports from AgriStats that the average U.S. broiler company returned to profitability in January 2009 and profits strengthened in February and March. Furthermore, they predicted broiler firms will remain profitable for the rest of the year if meat prices get a seasonal bump. We have already begun to see a rise in broiler prices.
There is a downside to this potential recovery – the loss of jobs. This extracts a huge human cost. Integrators have had to make some tough decisions to survive. Entire complexes and plants have been shuttered while most have implemented some type of hiring freeze. I have detected greater anxiety among industry personnel the last few months. They are pressed for time because of consolidated positions and generally nervous about what could occur. These closings are an unprecedented event in the poultry industry that provoke uncertainty. As we’ve seen recently, the cause may be outside their control (e.g., downstream vendor losing business).
Is there more to be done? Certainly, this is only the tip of the recovery iceberg and could prove to be a false prophet. Jobs are dependent on continued and predictable profitability. Based on predictions from our respondents, it could be the end of the year or later until “normal” profitability returns. Furthermore, nearly 60% of our respondents feel that more production cuts are necessary to return the industry to profitability by year end.
There were several positive signals in this quarter’s data. However, many feel that the industry needs to make more cuts to sustain recent profitability. Jobs and opportunities will continue to be in short supply in the interim. Let’s hope that grain prices remain moderate and exports strong so this recovery can continue to prosper.