Like the U.S. Gulf Coast, the poultry industry has been hit by more than one hurricane over the last year. A mix of events has led us to the lowest point since we launched this index over 12 years ago. However, like the rainbow after the storm, some see a brighter future.
The Poultry Confidence Index, which experienced declines since the second quarter of last year, fell only slightly during this third quarter. The Index now stands at 45.5 (1996 = 100), down slightly from 48.0 the previous quarter. The Present Situation Index registered a rock-bottom score of 10.6. And to think this Index was at 150 only a year ago. The Expectations Index, which had declined for four consecutive quarters, experienced a slight rise from last quarter's 63.1 to the current 68.9. This was driven almost exclusively by an anticipation of greater profits in the near future.
These findings are similar to those reported for the Consumer Confidence Index (CCI). The CCI improved during both July and August. According to the sponsors of the CCI, the present situation appeared to be "moderating" while the Expectations Index "posted a significant gain".
We are all aware of what has contributed to the current pessimism in poultry high fuel costs, high feed costs, the inability to raise prices, nervous consumers and an abundance of protein. As we have seen, these variables force tough choices as evidenced by Butterball's cessation of placement and slaughter at its Longmont, Colo., complex. Butterball put the blame squarely on the shoulders of the "nation's current renewable fuels policy". Pilgrim's Pride has also called on the government to reduce its ethanol standards by half, citing an increase in feed costs of $900 million this year.
Slightly-optimistic expectations were driven by predictions of an improving economy, declining fuel costs, decreased production and increased prices. Fuel costs although much higher than a year ago have steadily fallen since reaching their historic highs during early summer. Production is also down with broiler egg sets averaging about 4 percent below previous-year levels.
However, producers may not be able to generate higher prices in the near future. There have been some increases in prices, but not nearly enough to offset the phenomenal cost increases. An economic model from Express Markets Inc. Analytics shows that most producers will not be in the black until 2010.
There is optimism that profits will improve in the next six months, but much of this is predicated on a substantial rise in prices. Current trends and economic models do not support a sizable increase given production forecasts. Unless integrators find a way to pass on cost increases, it could be a while before the industry experiences widespread profitability.