High feed costs, abundant meat supplies and economic recession pushed the US broiler industry to the breaking point in 2008.
After months of losses with little relief in sight, the industry began to cut production in 2008 in an effort to rebalance supplies with recession-damaged demand. The first strong evidence of contraction was seen mid-year as a sharp reduction in the size of the hatchery supply flock, which dropped from 58 million hens in early 2008 to 53 million hens by the end of the year – about the same flock size at the end of 2000.
Broiler slaughter fell below the previous year in late 2008, with a five per cent decline in the fourth quarter, which has continued through September 2009. The supply cuts generated moderate domestic price increases, and along with declining feed costs, allowed the average US producer to be profitable by early 2009.
How long will the production cutting continue? Recent weekly hatchery data indicates continued slaughter reductions through mid-November. The author does not expect to see the full extent of the late-year cuts of 2008 sustained in late 2009 but the rate of increase will likely be small. Winter is not the strongest period for chicken demand, and competing meat supplies remain abundant enough to keep broiler product market pricing relatively low. It is expected that the average US poultry company will slip below breakeven or into making a loss at times in November through January.
After months of losses with little relief in sight, the industry began to cut production in 2008 in an effort to rebalance supplies with recession-damaged demand. The first strong evidence of contraction was seen mid-year as a sharp reduction in the size of the hatchery supply flock, which dropped from 58 million hens in early 2008 to 53 million hens by the end of the year – about the same flock size at the end of 2000.
Broiler slaughter fell below the previous year in late 2008, with a five per cent decline in the fourth quarter, which has continued through September 2009. The supply cuts generated moderate domestic price increases, and along with declining feed costs, allowed the average US producer to be profitable by early 2009.
How long will the production cutting continue? Recent weekly hatchery data indicates continued slaughter reductions through mid-November. The author does not expect to see the full extent of the late-year cuts of 2008 sustained in late 2009 but the rate of increase will likely be small. Winter is not the strongest period for chicken demand, and competing meat supplies remain abundant enough to keep broiler product market pricing relatively low. It is expected that the average US poultry company will slip below breakeven or into making a loss at times in November through January.
Once expansion begins again, how much of an increase and how fast? One indicator is the size of the national hatching egg flock. Through 2009, the average flock size has been close to 1998’s average level at 53 to 54 million hens. Although these hens are young and productive, the current flock size would not generate enough hatching eggs to increase broiler slaughter substantially. Pullet placements have been reported by USDA at very low levels for over a year, indicating that the supply flock will remain in the relatively small 54 to 55 million hen range during 2010.
Hatching egg production was reported by USDA to be down 1.6 per cent in 2008 and a further six per cent in 2009. Based on the pullet placement reports, it is expected that hatching egg production will increase perhaps two per cent in 2010. Without more hatching eggs, a quick replacement of the reduced broiler supply would be difficult to achieve.
Concerns over the path of economic recovery are a powerful incentive for producers to be cautious as they plan a return to full capacity utilisation. Although the recession is likely over in technical terms, US consumers are still faced with uncertainty, high unemployment, and lingering credit crisis issues. Consumer demand through food-service channels had been a strong growth area for value-added chicken products in recent years but growth gave way to a sharp decline as the recession began.
In particular, reduced demand for breast meat through food-service channels severely limited wholesale market price increases, despite substantial production cuts. Until the food-service segment of the US economy improves, it may be difficult for wholesale markets to advance to the point of sustained positive margins.
Hatching egg production was reported by USDA to be down 1.6 per cent in 2008 and a further six per cent in 2009. Based on the pullet placement reports, it is expected that hatching egg production will increase perhaps two per cent in 2010. Without more hatching eggs, a quick replacement of the reduced broiler supply would be difficult to achieve.
Concerns over the path of economic recovery are a powerful incentive for producers to be cautious as they plan a return to full capacity utilisation. Although the recession is likely over in technical terms, US consumers are still faced with uncertainty, high unemployment, and lingering credit crisis issues. Consumer demand through food-service channels had been a strong growth area for value-added chicken products in recent years but growth gave way to a sharp decline as the recession began.
In particular, reduced demand for breast meat through food-service channels severely limited wholesale market price increases, despite substantial production cuts. Until the food-service segment of the US economy improves, it may be difficult for wholesale markets to advance to the point of sustained positive margins.
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