COVID-19 will define 2020 for the US poultry industry

Although there is hope the worst is over, 2020 will be remembered as one of the most challenging years ever for the poultry industry.

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(Lightspring | Shutterstock.com)
(Lightspring | Shutterstock.com)

Although there is hope the worst is over, 2020 will be remembered as one of the most challenging years ever for the poultry industry.

Since the global COVID-19 pandemic arrived in the U.S. in March 2020, the country experienced significant economic, social and political shocks. Lockdown orders, limitation of gatherings and closures of public spaces defined the first half of the year. As the second half of the year begins and cases continue to rise, the disease looks likely to be the defining issue for the rest of 2020, too.

The domestic poultry industry, after an initial period of shock, looks to be ready to live with a so-called new normal defined by the disease. Nevertheless, Will Sawyer, lead economist covering animal protein for CoBank’s Knowledge Exchange Division, said 2020 will likely be the most challenging year for U.S. poultry since 2011. Overall chicken production should be up by 2% to 3% compared with the prior year, but industry profitability will likely be down as a result of weaker foodservice demand.

raw-chicken-processing

Overall chicken production should be up by 2% to 3% compared with the prior year, but industry profitability will likely be down as a result of weaker foodservice demand. (Anton Mislawsky I shutterstock.com)

Processing continues

When the disease arrived in the U.S., there were concerns about the sustainability of meat packing operations employing large crews working shoulder-to-shoulder. The beef and pork industries were hard hit with temporary and extended closures, but the chicken industry is so far avoiding any prolonged closures related to the disease.

Matt Spencer, director of human resources and safety programs for the U.S. Poultry & Egg Association, said the industry is making progress in controlling the disease in its processing plants by increasing its adherence to public health guidelines and making a wide effort to minimize risk.

Testing for the disease and monitoring for symptoms is more common. Sanitation measures are elevated. New measures to promote social distancing in the plant –  adding physical barriers to protect workers on the processing line, increasing space between workers both on the processing floor and around the plant and its grounds, and staggering shifts – are being normalized. Workers are also being educated on how to avoid contracting COVID-19 off the job.

Tom Super, the National Chicken Council’s senior vice president of communications, said as of early July 2020 production capacity was at 98% of the same level the previous year, worker absenteeism was back to pre-pandemic levels and processors were doing everything to create the safest environment possible for their workers. These new measures, he said, are likely to become standard procedures for the foreseeable future.

Workstation-Dividers-Tyson-Facility

New measures to promote social distancing in the plant like adding physical barriers to protect workers on the processing line are being normalized in the industry.

Shifting demand

According to industry associations and economic observers, the largest impact on the industry is shifting demand. The extended closure, or limited reopening, of full-service restaurants, schools, offices and event spaces is freezing demand from some foodservice clients. On the other hand, quick service restaurants and retailers are seeing brisk business.

In an earnings release issued on May 4, 2020, Tyson Foods Inc. – the largest integrated chicken company in the country – said it does not believe chicken pricing will improve for the rest of the year nor does it expect increased demand from retail and consumer business to completely offset the expected decrease in foodservice business.

In an earnings release published on May 28, 2020, Sanderson Farms Inc., the third largest company, echoed that sentiment. In a statement, Sanderson Chairman and CEO Joe Sanderson Jr., said due to the demand shift the integrator processed 4.2% fewer pounds of meat than it expected to in the second quarter. It reduced its egg sets relative to the new expectations and it now expects to produce 5.9% fewer pounds in the third quarter than it expected to before the outbreak as it shifts production to meet the demand of retail rather than foodservice clients.

Forecasting the rest of 2020

This new market environment, Christine McCracken, executive director for animal protein at Rabobank’s RaboResearch Food & Agribusiness division, provides no certainty if current demand trends will continue over the long term.

She said some integrators are making the operational shifts needed to increase their output of retail products, but others are more hesitant to make such a radical – and expensive – shift away from producing foodservice products to service what might be a temporary market change. Those most likely to make a shift toward retail in 2020, she said, are those who rely most heavily on foodservice clientele. This environment, she said, demands greater flexibility as everyone watches to see how the pandemic will play out in the U.S.

Sawyer said in April 2020, the integrators used every available tool to react to the sudden, unprecedented crisis by reducing placements, supply for slaughter and egg sets. The impact of those actions on the chicken supply is still being felt and he expected a reduction in the chicken supply in the third quarter of 2020.

school-with-covid-masks

Integrators are pushing production back up in anticipation of a more-normal amount of demand if and when school resumes in the fall. (oksun70 | BigstockPhoto.com)

Looking toward fall

The rest of the year hinges on how the virus will shape American life. Sawyer said the amount of demand coming from foodservice and consumers eating out is the biggest question. McCracken said signs are pointing toward integrators pushing production back up in anticipation of a more-normal amount of demand in the fall. This build up in inventory could reflect hope for a resumption of school in the fall. There are also questions surrounding the resumption of professional fall sports and the accompanying demand for wings.

Sawyer noted after a rocky period in the beginning of 2020 limited supply, competing proteins will be surging onto shelves for the rest of the year. This will create more competition for chicken, but the meat is typically competitive based on its price.

One positive for the rest of the year, however, is expected lower than normal feed costs due to strong grain supplies and relatively low prices. McCracken said there were some concerns about the availability of amino acids and vitamins, but those issues shouldn’t be significant later in the year. Sawyer said availability and costs of distiller's dried grains with solubles will likely see the most change this year.

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