Damage Inflicted on U.S. Poultry Sector by Hurricane Katrina Appears Light

Hurricane Katrina NOTE: This report includes updated production forecasts issued by the National Agricultural Statistics Service which generally reflect crop conditions as of the first of the month. The supply and demand impacts of transportation and port disruptions caused by the hurricane are presumed to be temporary based on available information as of September 12, 2005.

Minimal Risk Rule NOTE: Due to uncertainties as to the length of bans on trade in ruminants and ruminant products because of the discovery of BSE in the United States and Canada, forecasts for 2005 and 2006 assume a continuation of policies currently in place among U.S. trading partners. It is assumed that the current delay in the implementation of the minimal-risk rule is temporary. Subsequent forecasts will reflect any announced changes.

Poultry: Hurricane Katrina’s overall impact on U.S. broiler production is expected to be relatively small although damage in specific areas has been heavy. The impact on contract growers has been through loss or damage to growout houses and the extended loss of electrical power and initial scarcity of fuels for backup generators. Processors have also been hit with power outages, employees justly concerned with family situations, and transportation problems getting birds to plants and products to buyers. The destruction to key gulf coast ports has also forced the redirection of exports as a large percentage of overseas shipments normally went through these ports.

Eggs: Wholesale monthly table-egg prices (NY grade A large), fluctuated from a high of 67.8 cents a dozen in February to as low as 54.6 cents in May 2005. Since mid-August prices have steadily increased to 75 cents a dozen at the end of the month. U.S. exports of eggs and egg products through July increased more than 49 percent over the same period last year, due mainly to lower U.S. prices, the lifting of restrictions imposed by many countries on U.S. eggs and egg products following outbreaks of avian influenza (AI) in 2004, and some AI-related trade diversion from Asian exporters.

Broiler Production Estimate Decreased

The U.S. broiler production estimate for third-quarter 2005 has been reduced to 9.1 billion pounds, down 75 million pounds from the previous estimate, but still a 3- percent increase in production compared with a year earlier. The reduction reflects the falling gains in the number of chicks being placed for growout and lower gains in the average weight of birds at slaughter. Broiler production in July was 2.8 billion pounds, down 2.3 percent from a year earlier, mostly due to July 2005 having one less slaughter day than the previous year. The number of birds slaughtered in July was 719 million, down 3.1 percent from July 2004, while the average liveweight at slaughter was up less than 1 percent to 5.27 pounds.

The fourth quarter broiler meat production estimate has also been lowered and is now 8.8 billion pounds. This is a decline from the third quarter, but is 3 percent higher than the same period in 2004. Throughout July and August the number of chicks being placed for growout has shown little or no gain from the previous year. This pattern is expected to change slightly going into the fourth quarter with the growth in chick placements averaging slightly higher, responding to price increases for a number of broiler products.

Over the last few months, prices of a number of broiler products have begun to strengthen. Prices for most broiler parts averaged considerably lower than a year earlier during the first and second quarters of 2005, and prices for whole birds are still slightly lower than the previous year, but prices for leg quarters and thighs are considerably higher. Leg quarter prices in August averaged in the 45 to 46 cents per pound range, up almost 40 percent from the previous year. The increase in leg quarter prices can be attributed chiefly to export market strength.

Broiler Exports Higher in Second Quarter; Third and Fourth Quarter Forecasts Changed

Second-quarter 2005 broiler exports totaled 1.35 billion pounds, 34 percent higher than in the same period in 2004. The chief reason for the increase is continued growth in shipments to Russia, Mexico, and several Asian markets, primarily China/Hong Kong, Korea, and Japan. Over the first half of 2005, exports to Russia were 14 percent higher than a year earlier and shipments to Mexico have grown at an even faster pace. Exports to Mexico totaled 246 million pounds, 26 percent higher than the previous year. Mexico is the second largest market for broiler exports, and so far in 2005 it has been a larger market than all of the CIS countries combined. The export forecast for the third quarter was reduced by 25 million pounds and the fourth quarter forecast was raised by the same amount, as the damage to gulf coast ports is expected to raise some difficulties in securing cold storage and reworking schedules for shipments.

Turkey Production and Stocks Lower in July, Prices Higher

Over the first half of 2005, U.S. turkey production totaled 2.7 billion pounds, up 1.4 percent from the same period in 2004. However, the production forecast for the third quarter is 1.35 billion pounds, down 40 million pounds (down 3 percent) from a year earlier. Egg set data points to a smaller number of birds available for slaughter, but this decline is expected to be partially offset by heavier birds. Although production has been slightly higher in the first half of 2005, higher exports have more than offset the gain, resulting in declining turkey stocks (whole and products). Cold storage estimates at the beginning of August place turkey stocks at 508 million pounds, down 15 percent from a year earlier. The decrease in turkey stocks is almost evenly divided between whole birds (down 14 percent) and turkey products (down 17 percent). This is the second year of declining turkey stocks as stocks at the beginning of August 2004 were 17 percent below those of 2003.

The decline in turkey production and stocks has placed upward pressure on prices. In August, the average price for whole hen turkeys in the Eastern market was 76 cents per pound, up 4 percent from the previous year and 31 percent higher than in 2003. Whole hen prices in the third and fourth quarters are expected to remain higher than in the same period in 2004, as poult placements continue to point towards lower turkey production through the end of 2005.

Turkey Exports Continue Gain in June

Turkey exports totaled 49.2 million pounds in June, up 39 percent from the previous year. The total exports for the second quarter were 147 million pounds, an increase of 54 million (up 58 percent) from second-quarter 2004. As with broilers, the chief cause of the increase is strong exports to Mexico. In the second quarter, shipments to Mexico totaled 88.1 million pounds, an increase of 67 percent from a year earlier, and they accounted for almost 60 percent of total turkey exports. Shipments of turkey products during the second quarter were also much higher to China/Hong Kong and Canada.

Low Egg Prices Boost U.S. Exports

For the first time, East Asian countries imported the lion’s share of U.S. total egg exports, displacing the traditionally largest North American Free Trade Agreement (NAFTA) countries, Mexico and Canada. During the January-June 2005 period, East Asian countries received 40 percent of total U.S. egg shipments, while NAFTA received 30 percent. These shares were 18 and 48 percent, respectively, during the same 6 months of 2004. U.S. egg exports to the European Union (EU-15) increased from 8 to 12.3 million dozen, and those to Latin America and the Caribbean rose from 9.4 to 13.2 million dozen in the first half of 2005.

U.S. exports of shell eggs and egg products rose sharply to 103.2 million dozen during the first 6 months of 2005 compared with 61.6 million dozen during the same period in 2004. Processed egg products exports increased 125 percent, compared with a 37-percent increase for shell-egg exports (hatching and table eggs). The increase is mainly due to lower U.S. prices during the first half of 2005, the lifting of restrictions imposed by many countries on U.S. eggs and egg products following outbreaks of AI in 2004, and some trade diversions following the AIoutbreaks in several Asian countries, including the major exporters Thailand and China.

U.S. exports of processed egg products (in-shell egg equivalent) to Asian countries rose from 6.7 to 25.4 million dozen during this period, accounting for 53 percent of total processed egg exports in the first half of 2005. Japan received nearly 80 percent of these shipments (20 million dozen) followed by Korea, China, Hong Kong, Singapore, Taiwan, and the Philippines. Compared with the first 6 months of last year, U.S. shipments of processed egg products represented a substantial rise of 360 percent for Japan, 357 percent for China, and 117 percent for Korea. More dramatic was the increase of U.S. processed eggs shipped to the Philippines, which rose from 1,700 dozen in the first 6 months of 2004 to 349,000 dozen in 2005.

U.S. exports of shell-egg exports also rose in the first half of 2005, but less substantially than processed egg products. Table egg exports increased 71 percent while hatching egg shipments rose 9 percent. During the first 6 months of 2004, the major share of U.S. table egg exports went to Canada (71 percent). But this share decreased to 40 percent in 2005, while Asian countries’ shares rose from 23 to 29 percent. Hong Kong was the largest export market for U.S. table eggs, receiving 11.4 million dozen in 2005, up from 3.9 million in the first 6 months of 2004. U.S. table-egg shipments to Japan also increased to 3.1 million dozen during the first half of 2005, compared with only 37,000 dozen in all of 2003, and none in all of 2004.

This U.S. table-egg shipment constitutes the largest export quantity to Japan in a 15-year period for a first-half year. U.S. table-egg exports to China were up to 856,000 dozens in the first half of 2005, compared with 354,000 in the first half of 2004. Likewise, table-egg exports to Latin America and the Caribbean increased nearly fourfold, reaching about 2 million dozen during the same time.

U.S. hatching egg exports were up 8 percent in the first half of 2005 compared with the same period a year earlier. Traditionally, most hatching eggs were exported to NAFTA countries. However, in 2005, shipments to Latin American countries exceeded those to NAFTA countries (41 versus 37 percent of U.S. total hatching egg exports). The shift was mainly due to exceptionally large shipments to Brazil, of 2.3 million dozen during the period, up from 390,000 dozen the previous year. For 2006, U.S. egg exports are forecast about the same as 2005, due to competitive U.S. prices, high quality, and several restrictive measures imposed on layer flocks in the European Union-25.

Wholesale and Retail Egg Prices Decline From 2004

Wholesale monthly table-egg prices (NY grade A large), a representative indicator for all U.S. table-egg prices, fluctuated from a high of 67.8 cents a dozen in February to as low as 54.6 cents in May 2005. However, since mid-August daily prices have steadily increased from as low as 53 to 75 cents a dozen at the end of the month. The rise in egg prices that started in the second half of August was likely due mainly to an expected lower August egg production, as there has been a sharp drop in the number of U.S. egg-type layers, from a high of 289.4 million birds in February to 281.6 million in July 2005.

In the first quarter of 2004, farmers were attracted by economic incentives from rapidly rising egg prices and producers’ returns. Egg producers increased the size of layer flocks from 280.1 million birds in January 2004 to 289.4 in February 2005. Consequently, as egg production expanded, wholesale prices declined by more than half, from 114.9 cents a dozen in the first quarter of 2004 to only 55.9 cents in the second quarter of 2005. Likewise, retail egg prices dropped to $1.16 in the secondquarter of 2005 from $1.21 per dozen in the previous quarter. For all of 2005, retail egg prices are expected to average around $1.19 to $1.23 per dozen, which would be about a 10-percent drop from the 2004 record-high egg prices.

In 2005, table and hatching egg production is expected to rise to nearly 7.5 billion dozen, up nearly 1 percent from 2004. Table eggs will account for about 85 percent of total production in 2005. Hatching egg production in 2005 is expected to rise by a little over 1 percent, reflecting higher egg and broiler production. During the second quarter of 2005, the quantity of eggs going to the breaking market rose nearly 7 percent compared with the first quarter when both wholesale and retail egg prices were higher. Eggs broken in 2005 are expected to increase about 6 percent over a year ago as prices are expected to average relatively lower than in 2004.

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