Poultry Outlook Report - February 2004 - By U.S.D.A., Economic Research Service - This article is an extract from the February 2004: Livestock, Dairy and Poultry Outlook Report, highlighting Global Poultry Industry data. The report indicates that Broiler production is expected to be higher in 2004.

POULTRY - Meat Markets Riled by Disease Outbreaks

The outlook for world and domestic poultry markets continues to be in a state of upheaval due to outbreaks of Avian Influenza in Asia and the United States. High Pathogenic Avian Influenza (HPAI) has been reported in a number of Asian countries, including China and Thailand, two of the world’s top producers and exporters. Making the outbreak even more serious is that the strain reported in a number of these Asian countries is one that can be transmitted to people through close contact.

Weekly Broiler Slaughter Percent change from last year

After the outbreaks were confirmed, many nations that had been importing from these countries placed bans on the importation of all poultry and poultry products from the infected countries. The United States and Brazil are expected to benefit from increased access to these markets, however, U.S. gains may be limited by price competition of certain products in these markets.

However, in the near term U.S. broiler exports have been disrupted by import bans announced by several countries following the announcement that two broiler flocks in Delaware have tested positive for Avian Influenza (AI). Based on previous experience, expectations are that the nationwide ban will be regionalized if the outbreak is confined to a small number of flocks, permitting exports from States unaffected by the outbreak.

Weekly Turkey Slaughter Percent change from last year

Officials in New Jersey have also indicated that AI is present in their State. In tests at live markets in New Jersey, four markets have tested positive for AI. However, officials noted that positive tests at live markets are not unusual. Officials in Pennsylvania have stated that samples from an egg laying flock have been sent to the National Veterinary Services Lab in Iowa for analysis. In the first flock found to be infected in Delaware, tests have confirmed that the AI was a low pathogenic type, one that is not transmittable to humans.

The findings of AI in New Jersey and the possibility of AI in Pennsylvania could greatly expand the time and resources needed for testing and surveillance. Based on 2002 production data, Pennsylvania is not a major poultry producer, accounting for only 2 percent of national broiler production. The picture is basically the same for turkey production, with Pennsylvania accounting for 4 percent of total U.S. production. In both cases New Jersey’s production is very small. The possible impact on the egg side is stronger, with New Jersey accounting for 1 percent of national production and Pennsylvania accounting for 8 percent.

World and Domestic Poultry Markets Roiled By Disease Outbreaks

Composite Broiler Price Percent change from previous month

The outlook for world and domestic poultry markets continues to be in a state of upheaval due to outbreaks of Avian Influenza in Asia and the United States. High Pathogenic Avian Influenza (HPAI) has been reported in a number of Asian countries, including China and Thailand, two of the world’s top poultry producers and exporters. Making the outbreak even more serious is that the strain of HPAI reported in a number of the Asian countries is one that can be transmitted from chickens to people through close contact. After the outbreaks were confirmed, many nations placed bans on the importation of all poultry and poultry products from the infected countries. The United States and Brazil are expected to benefit from increased access to these markets. However, U.S. gains may be limited by price competition for certain products in these markets.

However, in the near term U.S. broiler exports have been disrupted by import bans announced by several countries following the announcement that two broiler flocks in Delaware have tested positive for Avian Influenza (AI). Officials in New Jersey have also indicated that AI is present in their State. In tests at live markets in New Jersey, four markets have tested positive for AI. However, officials noted that positive tests at live markets are not unusual. Officials in Pennsylvania have stated that samples from an egg laying flock have been sent to the National Veterinary Services Lab in Iowa for analysis. In the first flock found to be infected in Delaware, tests have confirmed that the AI was a low pathogenic type, one that is not transmittable to humans.

Retail Turkey Price Percent change from previous month

The findings of AI in New Jersey and the possibility of AI in Pennsylvania could greatly expand the time and resources needed for testing and surveillance. Based on 2002 production data, Pennsylvania is not a major poultry producer, accounting for only 2 percent of national broiler production. The picture is basically the same for turkey production, with Pennsylvania accounting for 4 percent of total U.S. production. In both cases New Jersey’s production is very small. The possible impact on the egg side is stronger with New Jersey accounting for 1 percent of national production and Pennsylvania accounting for 8 percent.

The HPAI outbreaks in Asia coming on the heels of the discovery of BSE in one cow in Washington State had placed considerable upward pressure on broiler product prices for domestic consumption and export. Some domestic consumers reacted to the finding of BSE by substituting broiler products for beef, and countries like Japan had begun increasing imports of U.S. broiler products after banning imports from Thailand and China. Prices for leg quarters in the Southern market averaged 28.3 cents a pound in January 2004, the highest monthly average since October 2001. The 12-city price for whole broilers averaged 68.7 cents a pound in January, up 3 cents from the previous month and the highest price since September 1998.

This forecast of tight supplies in the U.S. broiler market changed tremendously with the announcement that two broiler flocks in Delaware have tested positive for Avian Influenza (AI). The infected flocks have been destroyed and nearby flocks have been quarantined pending testing.

The full repercussions of the discovery of AI in the Delaware flock are uncertain at this time and will depend on the answers to a number of questions. First, what is the exact strain of AI responsible for the infections? The reaction of importing countries and domestic consumers will certainly be different if both infected flocks are proven to have low pathogenic AI rather than the HPAI strains impacting much of Asia. Second, will any other flocks test positive for the disease? If the infection is confined to these two flocks the reaction of domestic consumers is expected to be muted. Also if the infection is confined to these two flocks importing nations may be willing to limit their bans strictly to poultry products from Delaware. This has been the case with other disease outbreaks in the United States, but only when other nations have been assured that the outbreak has been confined.

In the short term, the AI outbreak is expected to reduce U.S. broiler exports. U.S. exports are expected to increase about 7 percent to nearly 5.3 billion pounds. The increase was based on the expectation that countries that had been importing poultry products from Thailand and China would turn to Brazil and the United States as alternative sources. However, increases in the first quarter will be smaller as a number of major importers have placed bans on imports from the U.S. pending testing results and containment of the outbreaks.

In 2002, Delaware produced 257 million broilers, or 3 percent of total national production. Delaware is not a major egg or turkey producer. However, the broiler production area of Delaware is close to those in Maryland which produced 292 million broilers in 2002. Maryland does also have egg and turkey production, but in both cases it too is a relatively minor producing State.

Broiler Production Up in 2003, Turkey Production Declines

With the addition of the broiler slaughter data for December 2003, the preliminary estimates of broiler slaughter in 2003 are 8.5 billion birds and a production of 32.7 billion pounds of meat. The number of broilers slaughtered is down 0.4 percent from the previous year, while meat production was up 1.3 percent. So, all the increase in meat production was derived from a 1.4-percent increase in average bird weight at slaughter. In 2003, the average liveweight at slaughter was 5.19 pounds, up from 5.12 pounds the previous year. Presently, 2004 domestic broiler meat production is estimated at 33.9 billion pounds, an increase of 3.8 percent.

Both the number of turkeys and production of turkey meat declined in 2003. Turkey meat production totaled 5.6 billion pounds in 2003, down 1.2 percent from 2002. The decline was the result of 1.4 percent fewer birds being slaughtered, more than offsetting a small increase in the average liveweight of all turkeys at slaughter. Turkey meat production in 2004 is expected to reach 5.7 billion pounds, an increase of less than 1 percent from the previous year.

EGGS - Retail Egg Prices Ended 2003 at Historical Records

For all of 2003, retail egg prices averaged $1.24 per dozen, compared with $1.03 last year and far above the historical record retail prices of $1.11 per dozen registered in 1996. During 2003 retail egg prices (U.S. city average, grade A) rose from $1.01 per dozen in May to $1.55 in December 2003. The price increase was due to the only fractional increase in table egg production (.3 percent) which was below the increase in population, and good protein food demand. The number of U.S. egg-type layers was slightly above its 2002 level until May and slipped below that level for the remainder of 2003, tightening egg supplies. Year-to-year comparisons indicated that the gap in egg-type layers between 2003 and 2002 widened by more than 4 million birds in October. Egg-layer numbers climbed up during the fourth quarter in normal anticipation of increased holiday consumption, yet ended 2003 nearly 2 million birds below last year.

Wholesale Prices Rise Sharply

Similar to retail markets, the wholesale egg market is also an inelastic market, where small changes in supply can have a large price impact. Consequently, wholesale table egg prices (NY grade A large) closed the fourth quarter of 2003 at 110.7 cents a dozen, 23.1 percent higher than the previous quarter, and 46.6 percent higher than the same quarter of 2002. The year-over-year wholesale egg price (NY grade A large) increased sharply from 67.1 cents per dozen in 2002 to 87.9 cents in 2003, or 31 percent. This was the highest wholesale price level since 1996, when the average was 88.2 cents per dozen. In 2003, however, high egg prices were likely due to tighter supplies, resulting from declining U.S. flocks of egg-type layers. The decline in the number of egg-type layers was a result of poor profitability during 1999-2002 and layer depopulation following the infectious Exotic Newcastle disease in California, Nevada, Arizona, and Texas in 2002-2003.

In 2004, wholesale prices will probably decline from the fourth quarter 2003 peak of 110.7 cents to an average of 96-102 cents per dozen, or about 12 percent, as the industry increases the number of layers, and the recent improved return provides an incentive to increase production. Average prices in 2004 are expected to remain above average prices in 2003.

Egg Production Up Moderately in 2004

Egg production is expected to increase 1.3 percent in 2004 due to expected continued higher prices improving producers’ returns and anticipated growth in hatching use for broilers. Hatching egg production in 2003 decreased by nearly 1 percent, but is expected to rise by nearly 3 percent in 2004. Table egg production is expected to rise only 1 percent. Table eggs account for 85 percent of total egg production.

During the fourth quarter of 2003, table egg production edged 2.4 percent above the third quarter, but hatching egg production trended in the opposite direction, ending the fourth quarter below the first three quarters. For all 2003, U.S. egg production (of both table and hatching) rose only marginally, to 7.27 billion dozen (.1 percent). Although U.S. egg-type layers’ number averaged lower in 2003 compared with 2002, most of the production growth resulted in increasing the force molt percentage rate by less than 1 percent, as well as the number of eggs laid per 100 table egg-type layers in 2003 by a little over one and one-half eggs per 100 layers per year.

Per Capita Consumption Declines

Per capita egg consumption in 2003 decreased slightly to 254.2 eggs, a little over one egg less than the previous year. Since 1996, U.S. egg consumption has increased by nearly 8 percent, or about 18 eggs per person. In large part this was due to increasing demand for breaking eggs by the commercial baking, confections, and fast-food industries. This trend was clearly indicated by the amount of eggs going to the breaking market, which rose from 28 percent of total table egg production in 1996 to 29.3 percent in 2003, nearly 1 percent below last year, due to high prices that dominated the market during 2003. Higher shell egg prices have inverse impact on the quantity of eggs going to the breaking market, which declined 3.4 percent compared with last year. The trends will most likely reverse course in 2004, as prices are expected to rise only modestly.

U.S. Egg Exports Decline in 2003

In 2003, U.S. egg exports totaled 150 million dozen, 14 percent less than the previous year. Exports accounted for only 2.1 percent of total U.S. total egg production. Shell eggs (for human consumption and hatching) made up nearly 55 percent of total U.S. exports, and the remaining 45 percent were exported as processed albumen and yolk in dried or in liquid forms. Most exports are shipped to five markets: Canada, the European Union (EU), Hong Kong, Japan, and Mexico, that accounted for 77 percent of U.S. total egg and product exports in 2003, and 83 in 2002. The drop was mainly attributed to smaller U.S. shipments to the European Union (EU-15), from 21 percent of the U.S. total in 2002 to 11 percent in 2003. Traditionally, the largest U.S. egg export market is Canada, receiving over one-quarter of all exports, followed by the EU, Hong Kong, Japan, and Mexico. U.S. egg exports to Canada are twice as large as each of these countries.

The recovery of egg-layer flocks from avian diseases in the Netherlands, Belgium, and Germany was completed in the first few months of 2003, resulting in a substantial drop of U.S. exports from 14 million dozen in the first half of 2003 to only 1.5 million dozen in the second half. The poultry sectors of these countries were reduced substantially due to Avian Influenza. As a consequence, the Netherlands, Belgium, and Germany increased imports of shell egg and egg products to compensate for their egg production lost. Over 91 and 83 percent of U.S. shell- and processed-egg exports to the EU went to these three countries in 2002 and 2003, respectively.

The composition of U.S. exports was divided evenly between shell (hatching and non-hatching eggs) and processed eggs (dried albumen, yolk, and processed products) at 51 and 49 percent in 2002. In 2003, shell eggs accounted for nearly 55 percent of total U.S. exports. The remaining 45 percent were exported as processed albumen and yolk in dried or liquid forms.

In 2004, U.S. exports of shell-eggs and processed eggs are estimated to increase by 6-7 percent due to expected increases in demand from China and other Asian countries following the spread of highly pathogenic Avian Influenza, which led to millions of layers, parent, and grandparent birds being culled.

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Source: Livestock, Dairy and Poultry Outlook - U.S. Department of Agriculture, Economic Research Service - February 2004