Much of the talk about demand in recent months has focused on a) the impact that exports markets have had on beef and pork prices via reductions in US per capita disappearance b) what price are US consumers willing to pay given ongoing economic troubles and the fact that as much as 18% of the US population is either unemployed or underemployed. The question that is heard often is: how high is high enough and at what point do consumers give up and decide to stop going to the back of the store and head for the pasta isle.

In our January 24 and 25 reports we went over the demand issues for the various species and will not belabor the point here or go back to reviewing Econ 101. Rather it is important as we consider the path for beef and pork prices going into the all important March and April period to keep an eye on broiler production and overall meat protein availability during the spring and summer months.

So far, broiler producers have been able to not only cut back sharply but also sustain those reductions for a relatively prolonged period of time.

The latest data shows egg sets for the week ending February 4 were down 6.2% from the previous year and they were 7.3% lower than the five year average. Since the beginning of the year egg sets have been on average about 5.5% lower than the previous year.

Chick placements since the start of the year are down about 4% compared to a year ago. This implies that overall chicken production will remain well below year ago levels at least through the end of Q1 and very likely into Q2. Indeed, given sharp reductions in the hatching flock, most analysts now expect broiler production in 2012 to be lower than the previous year.

The impact of the cutbacks in broiler production has not been uniform on chicken prices. Whole bird prices are somewhat higher compared to a year ago but any price inflation for whole birds remains somewhat limited at this point. Prices for boneless skinless chicken breasts also have not increased as much as one would expect and current prices are about 8% higher compared to January 2011.

One factor that continues to negatively impact the chicken breast market, in our view, is the slow recovery in the foodservice business. While reports are that foodservice demand may have turned a corner we still think the recovery there will take time given high rates of unemployment. As a result, chicken companies still have too many loads of chicken breast that they need to move in the spot market, keeping prices in check. On the other hand, prices for leg quarters are up some 51% and wings have jumped some 80% compared to a year ago, trading at record high levels.

Profits in the industry are slowly returning but they are tenuous at best and highly dependent on keeping supplies in check.