The longer-term outlook for the U.S. poultry industry is bright, according to a trio of speakers at the 2011 Market Intelligence Forum, but high grain prices, potential oversupply of poultry proteins and trade barriers in major markets are “must solve” issues in the here and now.

Shocking grain prices  

Grain prices in 2011 will he higher on average than in 2008 – the year notorious for punishing poultry company balance sheets – predicted industry consultant Paul Aho. While corn prices peaked at nose-bleed levels in 2008 before subsiding to more normal levels, prices for corn and other grains are likely to go up and stay high in 2011.

Corn prices, a key component of feed costs, could easily range near $7.50 a bushel, he said, as ethanol demand continues to consume more and more corn.

Using 2006 as a baseline, Aho projected feed costs for live chicken will be up by 35 cents a pound in 2011, an increase of 133%. Feed costs have been above 2006 levels every year since, but never by this much. The 2008 price change per pound of chicken was 29.73 cents, or up 98% over 2006 levels.

Factors driving production  

For now, the supply of chicken keeps coming. Michael Donohue, vice president, Agri Stats, Inc., said the five biggest weeks on record for U.S. broiler production, in terms of pounds produced, occurred recently – three of the weeks in October 2010, one in December 2010 and one in January 2011. The increases are principally bird-weight driven and aided by improvements in livability and growth rates.

Donohue also expressed concern about rising grain prices. “Corn futures prices continue to climb and when you include basis and freight we will be feeding $7.10 to $7.30 corn through the first half of 2011. This will add another 2 to 3 cents per pound to live production costs,” he said.

Counting on exports  


Keeping U.S. poultry exports flowing would play a big role in supporting industry profitability 2011, and Jim Sumner, president of the USA Poultry & Egg Export Council, shared a couple of upbeat notes amid ongoing market access issues with Russia and China.

Despite Russia's push to be self-sufficient in poultry production, U.S. exporters should not write Russia off as an important market just yet, he said. Consumption of poultry in Russia is rising even faster than domestic production, he said, and Russia may continue to be a major customer for U.S. chicken for some time to come.

Sumner also pointed to opportunities in China. He noted that turkey and prepared poultry products are neither subject to the AD/CVD duties nor to the ARF requirement.

Supplies of poultry and meat proteins  

How should the industry respond to rising production costs – will it cut supply? “Given the grain prices that exist now and that those prices may go even higher, the market is calling for about a 5% reduction in chicken production this year,” Aho said in a question-and-answer session.

It’s not certain, however, that a significant cutback in the supply of poultry will happen immediately. One reason is seasonal improvement that would occur in spring and summer poultry prices. Another factor is some poultry producers may be counting on reduced supplies of other meat proteins, beef especially, to help keep poultry prices firm.

Opportunity to gain market share? 
The National Chicken Council’s Executive Vice President Bill Roenigk shed further light on the go-slow-on-cuts rationale in his comments from the audience. He said that a number of poultry companies see 2011 as an opportunity to gain market share while the supply of red meats is down.

“Poultry people, being optimistic, look at those supply numbers and believe this is not a problem, and that it is an opportunity,” he said. “I think a lot of poultry companies are hoping that they can fill what they think is going to be a bit of a shortfall in red meats.”