Meat price trends point to increase in poultry sales


Issue Date: May 21, 2014
By Ching Lee

Rising retail prices for beef and pork are helping to boost profits on other meats, especially poultry, which stands to benefit from increasing demand and lower feed costs.

The Memorial Day weekend usually kicks off the summer grilling season, and Bill Mattos, president of the California Poultry Federation, said he expects shoppers will look more to chicken and other poultry products this year as less expensive protein alternatives to beef and pork.

"The barbecue season is a big time for chicken," he said. "We think prices will probably go up for chicken, but not at all like we're seeing in beef and pork."

With the U.S. cattle herd at its lowest in more than 60 years—made worse in recent years by drought-related downsizing—and the porcine epidemic diarrhea virus lowering U.S. pork production, market analysts say poultry meats are poised to fill that market gap.

The bright outlook for poultry producers is expected to continue into 2015, as U.S. beef production is forecast to drop by nearly 6 percent this year, while pork production will also fall by as much as 7 percent, according to the Rabobank Food and Agribusiness Research and Advisory division.

William Sawyer, an analyst with Rabobank, said although overall U.S. meat consumption has declined in recent years—even before the recession—chicken consumption has stayed relatively stable and is now growing.

"That's been largely driven by the fact that beef prices have risen significantly more than chicken has," he said.

With the price of ground beef eclipsing that of chicken breast, Sawyer noted that fast-food restaurants such as McDonald's are taking advantage of poultry's lower price points by offering more new menu items featuring chicken.

Given how expensive it is to raise cattle compared to chicken in terms of feed cost, Sawyer said he expects chicken will continue to gain market share.

"Once consumers have the appetite for value, which is what we've seen in the growth in the chicken sector, it's unlikely that beef is going to regain that per-capita consumption that it's lost in the last seven or eight years," he added.

Despite market signals to expand production, Mattos said U.S. poultry flocks are not likely to grow much in the near term to capture the surging demand, because it takes time to plan expansions. There was not much economic incentive for producers to add more birds last year because of high feed costs, he noted.

U.S. broiler meat production is forecast to rise by 2.2 percent in 2015, while turkey production is expected to increase by 4 percent, according to the U.S. Department of Agriculture.

California poultry production also will not change much because of limited ranch capacity, Mattos added, noting that it takes about half a year to build a new facility and urban growth has restricted where ranches can be located.

Sawyer said another issue restraining expansion is the nation's limited breeder flock and continued high demand for fertilized eggs from Mexico.

Ken Mitchell, a Sacramento County turkey farmer who produces for Foster Farms, said it usually takes 24 weeks for breeder hens to become mature enough to lay eggs and then another 28 days before the eggs become poults, with a total lag time of about seven months to increase production.

He said while Foster Farms has its own in-house breeder flocks, the company has to supplement with poults and eggs from out of state, especially in August and September, when production ramps up for birds to be marketed during the holiday season.

Mitchell said because production capacity on his ranch is already maxed out, about the only thing he can do to speed production is to shorten the down time between flocks—and right now, his schedule is full.

"I make money when there's less down time," he said. "What benefits me is that the industry is doing well right now, so that helps me."

David Pitman, who produces specialty chickens and turkeys in Fresno County, said he does not plan to increase his production, which is based on what he is contracted to grow and what he can sell.

He said while he's seen a small increase in sales, he's not so sure it relates directly to shoppers turning away from other higher-cost meats.

"When beef prices get high, it does help poultry in general," he said. "But this is the typical time when we see an increase anyway, when people are barbecuing more, so it's tough to say what exactly (the increase) has been from," he said.

Sawyer said consumers who buy specialty products such as organic, free-range or antibiotic-free are much less sensitive to price changes anyway, so producers who raise birds for these markets are not as impacted by current price trends in the conventional market.

Although USDA projects U.S. pork production will bounce back from the PED virus next year with a growth of 2.9 percent, beef production is expected to continue to decline, as ranchers retain their heifers in an effort to expand their herds. That means meat prices will likely remain strong—and with lower corn prices, poultry producers will still have incentive to increase production, Sawyer said.

In addition, U.S. chicken exports, which take up 20 percent of total production, are expected to continue to grow, particularly to Mexico, and that will also help to support higher chicken prices, Sawyer said.

"So the outlook is very positive and very profitable," he added.

(Ching Lee is an assistant editor of Ag Alert. She may be contacted at clee@cfbf.com.)

Permission for use is granted, however, credit must be made to the California Farm Bureau Federation when reprinting this item.