A major event affected the poultry industry in each of the two previous versions of the Poultry Confidence Index (PCI). First, there was the fallout from Hurricane Katrina. This shattering event shook consumer confidence, but more importantly for us, created a high degree of uncertainty about shipping and distribution channels.
The bad news continued last quarter with the publicity and events surrounding avian influenza. This situation has constrained exports and, if it were to hit the U.S. shores, could be devastating. According to a recent Harvard School of Public Health survey, the results would be disastrous: “Nearly half (46 percent) of respondents who eat chicken or other poultry said that they would stop eating it if (AI) cases were reported (in the United States).” (See http://www.hsph.harvard.edu/press/releases/press02232006.html for a full press release.)
The Overall Index for the current quarter now stands at 76.0 (base=100), down from 91.9 last quarter. The main driver behind this decline was a fall in the Present Situation Index from 118.6 to 76.7. The Expectations Index held steady at 75.5, a negligible increase from 74.0.
The general pattern of these numbers suggests that the market is depressed, but expectations are that general business conditions and profits will rise in the next six months. The exception to this future optimism is that many predict jobs and expansion opportunities to be on the decline.
Let’s examine the present conditions. AI is definitely the hottest talk going. From news articles wide and far to conferences, this topic is on everyone’s lips. I’ve spoken with several individuals on the integrator side who said they have been spending virtually all their time reviewing their control procedures with clients, and assuring them that they have taken all possible steps to avert any disaster in the USA. To allow AI to enter would be devastating for suppliers and clients alike.
In addition to this general buzz, AI is having real consequences by reducing exports, especially in the near term. As reported by the USDA’s Economic Research Service in their Livestock, Dairy and Poultry Outlook report: “Broiler exports for 2006 are expected to be up 3 percent from 2005, with most of the increase occurring in the second half of the year…Broiler exports are expected to resume growth as concerns about eating poultry in those countries with highly-pathogenic avian influenza has occurred and low prices encourage price-sensitive markets to increase purchases.”
In conjunction with AI, prices have hit a bottom that has not been seen for quite some time. Although Georgia dock prices for whole birds were down only 6 percent since last year, prices for the highly-profitable whole-breast segment were down 30 percent. Add in expectations for a 3.7 percent total rise in beef, pork, chicken and turkey over the first nine months of 2006, and depressed prices are ahead for the near future.
On the bright side, however, many expect demand to pick up in the summer months, and as indicated above, for exports to grow as AI fears subside. If producers can hold the line on production, then the industry might be able to right the ship in the next six months. Lower grain prices versus a year ago will help to balance the books in the interim.
Summary. Concerns about AI linger among the public who receive a daily onslaught of bad news. These fears drive consumption lower in export markets, and according to one study, would cripple the U.S. market if AI reached these shores. Most expect conditions and profits to improve due to seasonal demand, a lessening of AI fears, and favorable input costs. There remain, however, deep concerns about jobs and expansion, with many predicting industry consolidation and a desire to maintain or reduce payrolls. Given the number of unstable variables and mixed signals, the future is unclear at this point.