U.S. chicken industry executives participating in a panel discussion in Washington, D.C., said they foresee a profitable start to 2011, despite worries over high grain prices and concerns about competitiveness in the global marketplace.
The panel at the National Chicken Council annual meeting addressed the profit outlook for 2011 and ‘success factors’ including grain supplies, competing proteins, global markets and competitors, the regulatory outlook, and more.
Beef, pork and chicken supplies
Tyson Foods CEO Donnie Smith predicted a “good environment” in the U.S. meat proteins markets in 2011, with the available supply of poultry rising 2.5%.
There is not much likelihood of oversupply of meat proteins, he said, based on an outlook for the supply of beef to be down 1.5% and pork supply to be flat.
Weak economy is dampening demand
Mike Roberts, president of food products business, Perdue Farms, said, “Unless grain prices get extremely high, the industry will grow.” The other factor that could stop growth in the near term, he said, would be a reversal in the economy.
Pilgrim’s Pride CEO Don Jackson said the economy will be the biggest factor in industry profitability 2011. “The economy is having a dampening effect on demand and continues to be a bigger factor in the market than the supply of chicken,” he said. “Supply is lower than 2008 levels, yet pricing is still extremely sensitive. There will have to be strengthening in the economy before a return to historical supply-demand relationships in the chicken business.”
Differing foodservice outlooks
Both the Tyson and Pilgrim’s CEOs forecasted increases in foodservice demand for chicken in 2011, but Jackson’s outlook was more optimistic. He predicted a 3% year-over-year rise in foodservice demand for chicken.
“I think we will see year-over-year growth in foodservice demand for chicken in 2011 ranging at the bottom from 1% and for the better companies on the order of 5% and perhaps averaging about 3%,” Jackson said.
He foresees strong beef prices and increased featuring of chicken by foodservice outlets as driving the increase in demand for chicken.
1% foodservice growth a win, says Smith
Smith forecasted only a 1% increase in same-store, traffic-driven, year-over-year sales of chicken at foodservice. He predicated his outlook on an expectation that the U.S. unemployment rate will continue in the 9.5% to 9.8% range in the immediate future.
Referring to his forecast for 1% foodservice growth, Smith said, “From where the industry has been over the last two years that is a huge win.”
Regulatory moves impact industry economics
Jerry Lane, president, Claxton Poultry Farms, said industry production levels are headed upward but “how much upward depends on factors other than those we control in our businesses.”
There are more “unknowns” than usual affecting the business outlook, Lane said, including higher, more volatile corn prices resulting from government mandates for ethanol fuel production.
Another factor, he said, involves the proposed regulations covering poultry contracting by the Grain Inspection, Packers and Stockyards Administration (GIPSA). He speculated that the proposed rule could result in poultry companies using their limited capital for construction of company-owned growing facilities instead of for growth opportunities.
GIPSA rules threaten grower incentives, says Roberts
Perdue’s Roberts said, “The proposed GIPSA rules are set up to reduce incentives. We are really concerned about not being able to incentivize our better producers, because we think it is going to hurt the quality of our product and the quality of the producers that we will be able to attract over the long term.
“The vagueness in terms and provisions of the proposed rule would result, we believe, in increased litigation,” he said. “And of course I think all of us understand that we spend enough time with counsel today on various subjects, but the recordkeeping required by this rule and the contract disclosures and cost justification requirements would increase and create a field day for trial lawyers and us trying to defend some of those things.”
U.S. poultry must rise to Brazilian competition, says panel
Panelists said their industry needs to pick up the competitive pace and be ready to compete in an increasingly global marketplace. Brazil’s poultry industry, for example, will continue to challenge U.S. producers in markets at home and abroad, and the U.S. poultry industry needs to rise to the competitive challenge, they said.
Brazil’s proximity to huge grain supplies will continue to drive that industry’s reach into global markets, including the U.S. market. The U.S. industry, they said, needs to learn how to compete with that challenge and must work politically to fend off a growing regulatory burden that threatens its competitiveness.
Warning about U.S. ‘regulatory overreach’
Donnie Smith said, “The reason the Brazilians and others are interested in the U.S. market is that this is a great market and still the world’s leading economy. It’s a great place to do business, and we don’t need to lose our competitiveness as an industry.”
He expressed concern over U.S. competitiveness in light of “regulatory overreach” which he said is “driving costs into the U.S. industry without providing a requisite value back for consumers.” If allowed to continue, he said, this will lead to the U.S. industry being less competitive globally.
Brazil positioned for continued success
U.S. producers have the home-field advantage of producing for the world’s leading poultry market, the panelists said, but the Brazilians enjoy cost advantages that will be difficult for the U.S. to match.
Mike Roberts said, “Brazil is going to be a factor globally. They can produce five crops of grain in two years, while U.S. farmers can at best produce three, most of the time two. Brazil will continue to be a factor, and we will have to learn to how to compete with them.”
U.S. can learn from Brazilians, says Jackson
Don Jackson said, “The reality is that Brazil is in a unique position relative to the world’s meat supply, both in chicken and beef. There will continue to be Brazilian companies with interest in [producing and selling] chicken outside of Brazil.”
Jackson, whose company was acquired in 2009 by Brazilian meat and poultry producer JBS, S.A., said Brazilian companies bring a focus on costs and efficiency from which U.S. companies can learn.
“The Brazilian approach to this business has been very successful and brings a level of efficiency that in some respects we have ignored in the U.S. industry over the last several years. We’ve been successful, in some respects, in spite of ourselves. I think that the Brazilian approach to the meat business will allow us to reexamine how we approach the business,” he said.
Panelists’ top concerns
What are the U.S. poultry industry’s top challenges? The executives said the following things concern them the most:
Don Jackson: After experiencing decades of phenomenal growth, the industry needs to adjust to a tougher economic environment going forward. Companies must become more efficient operators and better marketers.
Jerry Lane: With increasing competition for a finite supply of grains, the industry needs to develop better strategies for sourcing feed grains at prices that won’t price poultry products out of customers’ reach.
Mike Roberts: Opportunities for the poultry industry are growing worldwide, and this is very positive for companies that get involved globally. Companies that don’t get involved in the global market are going to wake up one day and not be well positioned.
Donnie Smith: A new generation of consumers, lawmakers and regulators has little understanding or appreciation of conventional agriculture. The industry needs to educate society about the value of agriculture and vigorously defend farmers.