Rising feed prices may challenge broiler companies at the end of 2020 and beginning of the new year.
In a WATT Poultry Chat interview, Mark Jordan, executive director of LEAP Market Analytics, said the rising cost of corn could be a big issue for integrated poultry companies in the near future.
Jordan also spoke about the importance of the chicken wing in the total value of the broiler bird at the end of 2020.
Austin Alonzo: What are your thoughts on the end of 2020 and beginning of 2021?
Mark Jordan: I wanted to take a few minutes and just look at kind of the big, big picture things that are affecting the broiler industry winding down this year and what I believe will be front and center affecting decisions in 2021.
First and foremost, jumping right in the feed costs picture has emerged as a huge threat, especially if you go back even as recently as July early August, it looked like broiler industry and other end users of corn and soybean meal would be swimming in cheap feed inputs for the foreseeable future and with the Derecho that hit Iowa and did a lot of damage there and then more recently, there's been a lot more focus on the global supply picture and an export, strong export sales out of the U.S.
You'll get a coordinated spike in prices corn and soybean meal here to close out the year. And then you look at futures prices: corn futures, you got some front month futures up near the 440 mark. Soybean meal futures in the first half or so of 2021 firmly above $400 a ton. So very strong pricing. I think one of the risk factors is of even further appreciation. So I got the next chart here real quick you look at the corn market I mean and this can apply also to beans I won't get into too much detail there, but we've got risk of further tightening in these balance sheets. USDA will come out with their January World Agricultural Supply and Demand Estimates report and give a final tally on crop production numbers for 2020 and then probably make some adjustments to export sales commitments. We're looking at potentially in the stocks to use as a very strong predictor of price as we can see from the chart here and we're looking at stocks to use ratio potentially moving down to kind of that 10% area and and you know we've got some risk on the corn market up into the from marketing your average perspective around the 450 mark pretty easily and futures reflect some of that now but certainly some more upside.
So that's point one. Point two is thinking demand and first off just demand at a very high level. COVID, of course, I know that with the vaccines out and being distributed there's a lot of good vibes there and that we're seeing the light at the end of the tunnel but we've seen a lot of damage in the last nine months or so. And from a demand side perspective, restaurants, and there's a lot of that going on with this current wave and even with the vaccines pending I think we still see a first half of 2021 that's very disruptive still problematic and having to navigate that supply chain. Producers and integrators still trying to keep chicken coming to market and even for especially downstream the restaurants and everybody just how we manage society and navigate through these difficult waters until hopefully we can build some herd immunity and get kind of past this thing but I think we've still got six months of pain and disruption. And then and finally a little more specifically but talking about demand and just looking at the broader broiler industry has really been bailed out by phenomenal wing demand. We saw our love affair as Americans with wings has really shown if you we look at especially the fourth quarter this this year. This recent time period has been just phenomenal demand. The wings have been carrying the broiler cutout, it has really made up for weakness elsewhere.
Now I'll look at the last chart here, now we are seeing some evidence that strong wing prices has helped pull up the tender loin market so tenders are doing very well. A big question is can we see a little more strength elsewhere but wings, tenders are relatively small volume combined of the cutout but such strong demand and strong pricing in those segments are helping keep the broker industry, afloat so we'll see what 2021 holds, but some other cuts definitely need a little more improvement to get them out of the red.
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