Private analysts also expect broiler supplies to expand next year, thanks to lower feed costs and high priced red meat competition. The question is what kind of expansion should we expect and how this may affect beef and pork prices.

To us, the USDA November estimate appears conservative. Assuming a 1 per cent increase in broiler weights, which is in line with long term trends and the shift to marketing heavier birds, the production increase implies that the number of broiler coming to market in 2014 will increase by less than 2 per cent compared to 2013.

It is true that the growth in broiler supplies cannot be instantaneous but it certainly is a lot faster than for cattle and hogs. We estimate that it takes about 6-8 months to ramp up production, including the time needed to expand the hatching flock. The expansion process has been underway for the past three months.

Producers have responded to the sharp drop in forward feed costs and the size of the hatching flock has been expanding. According to the monthly USDA Chicken and Eggs report, the supply of broiler type hatching layers as of 1 October was 51.695 million head, 4.9 per cent more than the same period a year ago.

Since August, the hatching flock has averaged about 4.7 per cent above year ago levels. This would imply that the industry is gearing up for a notable increase in the number of birds coming to market in 2014. After all, the record supply of corn produced this fall will have to be absorbed somehow.

With cattle supplies tight and hog producers struggling with PEDv disease, the broiler industry appears to be best positioned to take advantage of the lower feed costs. And if corn prices at $4.5 are not enough to encourage rapid expansion, corn prices will probably need to be lower in order to clear the market.

What is not in dispute at this point is that US farmers will likely have about 14 billion bushels of corn in their silos this fall. Somehow that supply will need to be used up. In the short term, the supply of broiler coming to market is slowly increasing.

Broiler egg sets in the last four weeks have averaged 3.5 per cent above year ago levels while chick placements (note there is a 3-4 week lag here) are up 1.9 per cent vs. last year. The number of poult placements today correlates very strongly with the number of broilers coming to market 5-6 weeks down the road (see chart below). And with a larger hatching flock, the expectation is that broiler supplies will only trend higher from current levels.

But it is not all blue skies for broiler producers and they will likely try to walk a fine line between trying to preserve their margins (which have been very strong this year) and expand their sales both vis-à-vis their competitors within the broiler industry and in the beef and pork complex. The rapid price erosion this fall for a number of broiler products caught many by surprise.

It also remains a major concern for both cattle and pork producers who will find a much more compeititve landscape next year. Boneless/skinless chicken breast was trading near $2/lb earlier in the year, thanks to some successful fast food promotions but it has dropped to about $1.27 today. Part of this is seasonal but in part it reflects the impact of expanding supplies. Wing prices also have declined sharply at a time when prices are seasonally higher (they are down 28 per cent vs. yr ago). Leg quarters are also down 16 per cent vs. last year.

Bottom line: Low grain prices are positive for cattle and hog producer margins but they also will make for a more competitive market and will ultimately mean lower meat prices for US consumers.