The integrated poultry industry is dealing with the dual threat of dropping demand and high costs ahead of 2023.
In a WATT Poultry Chat interview, Mark Jordan, executive director of LEAP Market Analytics, shared his firm's data reflective of demand for chicken and his assessment of market conditions potentially troubling integrated broiler companies.
Austin Alonzo: I want to talk about something that your firm has observed, you're seeing a major demand and price shift at the end of 2022. What's up? And what does that mean for the Integrated poultry industry?
Mark Jordan: What we're seeing is really been nothing short of breathtaking. And I'll jump right in.
If you go back to 2021, a good chunk of that, especially towards the second half of the year, and even building steam into 2022. Chicken demand was really strong, and even just continuing to soar, so to speak. This index basically looks at a very long timeframe of prices, adjusted for inflation, these are wholesale prices for chicken and a composite of all broiler and also looks at corresponding quantity levels over time. And you can build something of a demand curve through that data and then show deviations from sort of normal or average. And what the data showed during that stretch was a huge rightward shift in the demand curve. And then all of a sudden here in the second half of the year, just a collapse. Now, the fourth quarter is still a forecast technically, but in terms of we're a good month or so into the fourth quarter, we have a pretty good idea of where production and supply metrics are going to lead us. It's suggesting that we're seeing some very weak readings, led primarily by the front half of the bird: wings, and even now, breast meat and tenderloins are into the act of just kind of falling apart.
These wholesale markets, from where they were six months, and especially, you know, nine, 12 or 15 months ago. I think there's a few things that play is that there's been something of a disconnect between the wholesale and retail side where you had these markets calm so quickly, and sort of the middleman in the value chain, your restaurants, your grocery stores were maybe a little slow to pass along those higher costs, the consumer was still confident out there buying chicken six, nine, 12 months ago, and that reflected by this strong demand, then all of a sudden, the consumer started getting hit with these higher price points at the retail level. In September, the average retail price for boneless, skinless breast meat was $4.75 a pound that compared to $3.52 a pound the previous September. A lot of this kind of this lagged effect of retail price points really appreciating at a time where consumers were starting to kind of hunker down.
So you've gotten markets on the defensive and and really you know is that with a cost structure that has not yielded much ground corn and soybean meal prices have stayed pretty firm, corn is $6.50 to $7 a bushel or better in some places. Soybean meal, typically around 400 to 450 a ton, or even a little higher in places and labor costs still high, other material costs still high. What this suggests is some very brutal conditions on the margin front, integrators are starting to lose a little money.
Now, this picks up what's going on in. The spot markets are more reflective of that. I know with a lot of products sold on contracts, it's kind of smoothed some of this out suggesting that maybe when some of the really good returns showed to be happening earlier this year wasn't quite so good. And maybe conditions aren't quite as bad as what this margin chart shows right here. But still, the direction is very tough and it looks like a bumpy road ahead. At least as the industry moves into 2023.
