Coming off a seven-month ban of poultry exports to Russia – expected to be lifted soon but with provisions that could still limit sales there – U.S. poultry processors are responding with adjustments to sales mix and more deboning of dark meat.
Much of the increased production of deboned meat has been marketed domestically, and dark meat prices have held up surprisingly well during the trade stoppage. Potentially helping margins is the fact that value is being added to commodity cuts – legs and thighs.
A major challenge in this value-addition strategy, however, is a labor squeeze created by U.S. immigration enforcement, which has reduced the availability of skilled workers in some areas of the country. Processors across the U.S. are now weighing the tradeoffs in manual versus automated deboning, as they try to resolve shortages of skilled labor.
Investment is up significantly in 2010, especially in equipment for second-stage processing, as processors seek to achieve efficiencies and better margins on existing volume.
Processing trends in 2010
WATT PoultryUSA interviewed equipment suppliers about processing sector investment and trends. They identified the following trends:
- Deboning of dark meat has increased significantly with a number of processors continuing to raise bird weights to accommodate the deboning activity.
- Processors are seeking ways to automate processes wherever labor saving can be profitably realized, but investment decisions are on a plant-by-plant basis.
- Processors continue adopting electrical stimulation (ES) in first-stage processing in order to reduce or eliminate the need to age meat prior to deboning.
- Processors continue to focus on processes and equipment that allow them to harvest and sell poultry organs and byproducts – an important source of revenue.
- Water conservation and reuse is a major concern and will continue to grow in importance.
- There’s continued adoption of IT systems that centralize data and permit its distribution and use throughout processing operations.
Investment is up
The year 2009 was the worst in memory for sellers of poultry processing equipment. Not only did capital spending by processors virtually disappear, so did spending for spare parts. By the latter half of 2009, however, poultry processors were investing again in equipment and spending for parts.
“We saw a real pick up in investment by processors beginning in August of 2009,” said Heath Jarrett of Meyn. He foresees a slight decrease in investment by processors over the next 12 months compared to the very strong first six months of 2010 but investment remaining "pretty good" in 2011.
Chuck Shiver of Murzan said, “Poultry processors had put off capital purchases to the point that they did not have any choice but to start investing in much needed replacement or new equipment.
“I’m optimistic about prospects for the poultry industry now. Processors have tightened their belts over the past couple of years, and even though feed prices and energy costs are high, they are in good position. There’s not much expansion in slaughter volume at this time, but there is an increase in value addition in second-processing and further-processing,” he said.
Turning point for industry
The skyrocketing grain prices and recessionary economy in 2008-09 were a turning point for the U.S. poultry industry. One result was a more intense focus on controlling costs.
Mitch Staugler of Prime Equipment Group observed, “When costs for grains and other inputs went through the roof in 2008, poultry industry managers said, ‘We’re not profitable anymore, so let’s start looking for ways to save money.’”
The way in which processors evaluate investments to gain efficiencies has also changed, according to Keith Moffitt of Bettcher Industries. “When processors are making money, opportunities are just that. But when they are not making money, those opportunities carry a lot more weight in their decision-making,” he said.
Focus on yield, sales mix
Processors’ business approach has changed in other ways as well, according to Sid Adkins of Gainco.
“There aren’t many plants slaughtering additional birds. Processors are looking for ways to get higher yields in existing capacity or moving to more profitable sales mixes. That may involve moving away from selling leg quarters and toward deboning as a way to add value. Or it may involve injecting marinades or producing portion-control boneless meat. Those are sales-driven projects as opposed to volume expansion. Processors are looking to add more value and realize more revenue from existing volume.
“I think the industry’s investment in first-processing – where high-speed lines were installed in the past few years – is mostly behind us,” he continued. “Now, there is more focus in second-processing in cut-up and deboning.”
Bigger birds for deboning
All the suppliers contacted agreed that processors are deboning more white and dark meat, and several suppliers commented on seeing increases in bird weights to support this trend.
“Some processors who were producing a tray-pack size of bird of around 5 pounds have moved to bigger birds in the past four to six months,” Heath Jarrett said. “Some of these changes involve going from 6-inch to 8-inch center shackle lines, and some are taking weights up about a pound. When plants move up in weights in that way, they are doing more cutting, slicing and portioning of the breast meat.”
Adjustments in stunning, killing
Wayne Austin of Simmons Engineering said business has been brisk as his firm helps processors adjust stunning and killing operations to accommodate the increased bird sizes.
“We’ve modified our stunners to better handle those large chickens, and we’ve sped up our killing machines for a better cut. More torque and blade speed is needed to cut the bigger chickens so that they bleed rapidly,” he said.
The company now installs a stunner cabinet which was originally designed for turkeys on big-bird chicken processing lines.
Electrical stimulation (ES) systems are also being installed in first-stage processing in some plants in order to reduce or eliminate the need for aging of the meat prior to deboning.
“Electrical stimulation applied to the birds in first-processing, in combination with the dwell time in the chillers, allows the meat to be deboned straight from the chillers,” Austin said.
Colliding imperatives: Labor and yield
Yield is king in the deboning business, a supplier told WATT PoultryUSA, but skilled labor is the controlling factor in achieving top yields with cone deboning lines.
Cone lines manned by well-trained deboners can yield 1% to 2% more meat than automated deboning lines, according to supplier estimates. That could mean anywhere from $500,000 to $1.5 million a year, depending on the size of the deboning operation.
Nonetheless, where adequate numbers of skilled workers aren’t available to staff cone lines, processors are investing in automated deboning systems. Yields are said to be improving with each new generation of the automated deboning systems, and how close they come to manual deboning yields depends on the manual performance actually achieved.
There are nearly as many deboning strategies as there are products and plants, and these strategies are in flux. For example, some plants are currently moving away from whole-bird deboning, while others are moving to whole-bird deboning. Similarly, some deboning operations are adopting automation, while others are adopting manual cone lines. These and other shifts are being dictated by local labor availability, product requirements, markets served and other factors.
Capturing ‘other’ revenue
A growing percentage of total revenue for U.S. poultry processors comes from materials that were formerly discarded or which were low-value byproducts (See “What’s driving poultry profitability”). This includes everything from hearts, gizzards, and other organs, to poultry feet and paws. Some plants even recover and sell the keel bone for use in the cosmetics industry, while others supply chicken combs for the production of synthetic insulin.
Chuck Shiver observes, “Hearts, livers, necks, gizzards, feet, heads and viscera are valuable and captured and pumped in the plants, with every bit of it is being used in most cases.
“Feet and paws, for example, are bringing a better price than leg quarters at this time. Most of that goes for export to Asia, but there's now also demand for those products in the U.S."
Efficient gizzard processing
Gizzards are another product being recovered and upgraded with technology.
“Filleted gizzards are becoming a popular product in Asia, and more plants are now harvesting gizzards because they have methods for efficiently producing product. Before, a lot of the processes were manual, but now gizzard harvesting is becoming automated,” Mitch Staugler said.
He also observed that there’s more emphasis than ever on meat recovery. “Processors are more cognizant of what they are losing or might potentially lose,” he said.
As the poultry industry and its customer base grows more consolidated, with processors’ operations becoming larger, more numerous and far flung, there’s a growing need for centralized data and communications.
“Processors are recognizing that they must centralize product information and data, including testing records,” said Bill Altenpohl of Computerway Food Systems.
This is becoming a bigger issue as plants serve larger customers and must consolidate deliveries from multiple plants. It also can be an issue when special deals and labeling requirements are involved.
“In the past, individual plants might have labeled the same products slightly differently, with differences in labels’ content and appearance – sell-by dates, treatment of weight data and typography,” he explained.
“The solution involves installing a central server at a company to define the product code, the weight limits and what the labels should look like. All of a product’s attributes are described centrally and sent electronically to servers in the plants. That information then filters down from those servers to the equipment on the plant floor,” Altenpohl said.
A number of companies in the poultry industry have fully implemented the centralized servers, while others are still working on implementation. There are also companies with the capability but don’t fully utilize it. Still others have yet to adopt the technology.
“Many companies have left it up to the complexes to do their own thing in the past,” he said. “But there’s a trend to centralized data, and even the guys who resisted it won’t be able to resist it any longer.”