Despite a strong US economy, poultry industry confidence is dipping, according to the results of the third-quarter 2018 WATT/Rennier Poultry Confidence Index.
Good news and bad news
Broadly, market conditions are looking good. In the second quarter of 2018, the U.S. economy grew at 4.2 percent – its best performance in four years – and it’s on track to grow by 3 percent in 2018. In August 2018, the Conference Board’s Consumer Confidence Index reached its highest level since October 2000. Additionally, the U.S. Department of Agriculture expects domestic consumption of chicken, turkey and eggs will rise over the next 12 months.
However, major poultry integrators are not faring as well recently. Tyson Foods Inc.’s stock is down due to worries about market volatility. Sanderson Farms Inc. reported lower profits due to weak seasonal pricing aggravated by an increase in competing proteins. Similarly, Pilgrim’s Pride Corp. reported lower profits due to seasonal weakness and increased domestic protein supplies.
Producers see trouble on the horizon
Although confidence remains high in the poultry industry, signs of decline are evident, especially as it relates to future conditions and profits.
The Overall Index for the third quarter of 2018 now stands at 112, down from 128 last quarter (100-point baseline = 1996). The Present Situation Index fell to 148 from 168 the previous quarter. The Expectations Index also dropped to 88 from 101. This was the fourth consecutive quarterly decline for the Expectations Index and the second consecutive quarterly decline for the Present Situation Index. The Future Profit Index remained nearly unchanged at 77, while the Future Conditions Index saw the biggest drop this quarter, falling to 61 from 89.
Industry confidence remains above the baseline, but is trending downward due to concerns about the future.
Lower prices explain the weakness in the Future Profit Index, but what about future conditions? Survey respondents were clear, saying in their comments that there’s an excess of chicken on the market, too many birds currently in production, continued over production and a glut of protein on the market.
Conclusions
Although confidence for third-quarter 2018 remained strong, generally well above normative levels, there is clear and growing anxiety about future conditions and profits.
Most respondents remained optimistic. However, there was a clear undercurrent of concern about an oversupply of all proteins leading to depressed pricing. We will see next quarter if increased consumption, an improved economy and new trade deals can provide a boost or at least halt any further declines.
