The Poultry Confidence Index (PCI) took another plunge in the first quarter of 2011. For the first time in nearly two years, all the measures were below normative levels. The Overall Index now stands at 65.1 (1996=100), down from 94.5 last quarter. The Present Situation Index declined from 138.3 to 74.5. The Expectations Index also fell – but not as dramatically – from 65.4 to 58.9.
The decline in current confidence was one of the largest quarter-to-quarter drops recorded in the 15-year history of the PCI. As predicted last quarter, high grain prices – and the expectation of even higher grain prices in the near term – were the dominant force behind this mood.
Focus on grain prices
Those most pessimistic were singularly focused on high – and rising – grain prices with references to “grain price escalation” and “grain is through the roof” and “we are looking at $7 corn.” With these expectations, it’s easy to understand their position.
Interestingly, those slightly respondents who were more optimistic – but still citing or predicting poor conditions – listed not only high grain prices as a concern, but excessive ingredient costs and supply as well. One might assume that a greater number of worries might generate more pessimism, but that wasn’t the case. Focusing on more than grain prices seemed to moderate their negativity.
Concerns about rising fuel costs and “too much meat on the market” are certainly justified and will most likely have a negative impact down the line. Nightly news reports talk about $4 or $5 per gallon gas by summertime. The U.S. Broiler Hatchery Report in early March showed slightly more broiler egg sets and 1 percent higher broiler placements than a year ago. These reports lend credence to the grim predictions.
Minority expect quick turnaround
In the midst of this negativity, there were some respondents – mainly those with a dim assessment of the current state of affairs – who expected things to turn around. These optimists cited higher “demand for poultry meat and eggs due to very high rise in the prices of mutton, fish and vegetables” as well as an “expectation of a better economy and more income spent eating out.” Although in the minority, some respondents referred to the latest Consumer Confidence Index which was at a three-year high due to growing optimism about the short-term future as consumers are more positive about the economy and their income prospects.
One persistent expectation is for future profits to take a major hit. The Future Profits Index was 43.8 – tied for the second-lowest level recorded. This was obviously driven by high grain prices, rising fuel costs and expectations of lower prices due to excessive supply. As one respondent most likely echoed for most, “Less profits for the industry translates into less spending.” This could lead to industry-wide belt tightening as integrators try to do more with less and forgo “unnecessary” expenditures.
Finally, when compared to the consumer sector, the poultry industry seemed to be less worried about jobs and opportunities (although this quarter’s Opportunity scores were still well below the normative baseline). Negatively-oriented comments regarding consolidation and less expansion were balanced by observations like “there are good opportunities for good, qualified individuals” and “there are always opportunities for good people.”
Summary. Strong concerns over grain and input costs have begun to weaken confidence in the poultry industry. The potential for excess supply and lower prices played a smaller role. Expectations of reduced profits in the near future could lead to a short period of “belt tightening.”