Team Ag Real Estate

Arkansas         Oklahoma

         Louisiana      Missouri

CURRENT STATUS OF THE U.S. POULTRY INDUSTRY

Generally, the U.S. poultry business in 2009 has been under significant stress for the last 2 years but there are some signs of a recovery. One reason for poultry downturn is that increases in broiler prices have not kept pace with increases in feed and fuel costs to produce broilers. Georgia f.o.b. dock price for broilers, is at 84.75 cents per pound as of 9/18/09.

Broiler meat production estimate for 3rd quarter 2009 has been revised upward by 100 million #’s to 9.15 billion, down 3.2 % from 3rd quarter 2008. Total broiler meat estimate for 2010 has been increased to 36.15 billion #’s, up 1.5% from a year earlier. Earlier forecasts for 2009 were estimated at 35.78 billion pounds, down 3.1% from 2008.  Current forecasts are for 2009 broiler production to be at 35.6 billion #’s, about 3.5% lower than 2008 production levels.

U.S. per capita consumption of poultry is down from a high of 87 lbs in 2007 to 82 lbs currently.

Broiler meat exports over the first 7 months of 2009 total 3.97 billion pounds, almost 1% higher during the same period in 2008. Russia continues to be the largest importer of US broiler meat with strong demand also in Mexico, Iraq, Lithuania, and Angola. Although export volume is up through the July 2009, the value of broiler exports is down 2% from the same period in 2008.

On a positive note, countries like China are increasing their per capita consumption of chicken. According to Watt Poultry, urban residents in China have increased their consumption of poultry from 7.5lbs in 1990 to 18.3 lbs in 2006, a 244% increase. China provides an opportunity for increased poultry exports. Their per capita income is expected to increase. It is hoped they will spend more money on chicken and hopefully increase the price of US exported poultry. They are already the biggest buyer of chicken feet (paws) from the US. 

Pilgrims Pride, formerly the nation's largest poultry company, dropped to 2nd place behind Tyson, after closed 5 processing plants, putting 1000's of workers and contract growers out of work - in Clinton and El Dorado, AR, Farmerville, LA, and Douglas and Dalton, GA. The company filed for bankruptcy in 12/08. In May 2009, they agreed to sell its Farmerville, LA operation to Foster Farms of California for $80 million, $40 million of which is coming as a grant from the State of  LA. Pilgrims recently reached an agreement with Brazilian meat giant JBS SA, to sell 64% of the company for $800 million. These sale proceeds will pay off all debt claims and hopefully lift it out of Chapter 11 bankruptcy. This news has raised hopes that the 3 processing plants may reopen.

Sanderson Farms, in April 2009, announced plans to invest approx. $126.5 million for construction of a new complex in North Carolina. IN June 2008, they postponed to proceed with the project due to market conditions and escalating grain prices. They project start-up in 2001.   

Tyson Foods, now the largest U.S. poultry company, has seen its stock price jump in the last year, from trading as low as $4.40/share at the end of 2008 to now trading around $12.75. It recorded a $134 million profit loss for the quarter ending Jun 2009 as opposed to a $104 million loss for the quarter ending March 2009.  
 

Some of the industry's biggest concerns are: oversupply of chicken, prices of chicken below cost of production, and high corn and soybean prices in 2009.  Feed costs make up about 46% of broiler production cost, which now hovers between 70 to 75 cents per pound. Whole bird costs were about 56 cents/lb in 2000. Corn, the largest input cost in poultry feed, has jumped from $3.67/bushel on 11/8/2006 to  a record high of $7.88/bushel in June 2008. They fell in the fall of 2008 as commodity prices - and in particular oil prices - declined, a result of a slowing economy brought on by the 2008 Financial Crisis. Sep. 2009 corn is at $3.16 per bushel while Nov. 2009 soybeans are trading at $9.13 per bushel. Paul Aho, poultry economist with Watt Poultry, forecasts a 2 year lull in oil and grain prices, then expects corn prices to range from $5 - $6/bushel in 2010. He sees $0.35/# broiler production costs for the next 2 years before climbing back to the 45-50 cent range over the next 5 years as grain prices climb.   

A large part of this increase for corn and soybeans is the movement of U.S. corn production into ethanol production. About 11% of US corn was used for ethanol production in 2002. Now, about 33% of U.S. corn production is already going into ethanol from 50 ethanol plants built in the last few years. It is projected that up to 40% of U.S. corn crop could be made into ethanol by 2015. With the U.S. subsidy of $.51/gallon produced and using the conversion of 2.8 gallons of ethanol produced from one bushel of corn, turkey/poultry integrators are at a $1.40 per bushel disadvantage. Because of this increased ethanol production, the poultry industry, as well as all  livestock feeding operations which rely heavily on corn, are looking at a likelihood that of a permanent shift up in the price of corn.