CME: Chicken Values Plummet in Q4 of 2008

US - Yesterday's (November 11) CME Daily Livestock Report failed to mention one facet of the meat sector - the chicken industry.
calendar icon 12 November 2008
clock icon 3 minute read

Chicken is the most consumed meat protein in the US and just because of the sheer volume of product in the market, shifts in that industry tend to have a notable impact on competing meats. It is suspected that part of the reason why pork and beef prices have found it especially hard to get much traction in Q4 of this year is due to the overabundance of chicken in the marketplace.

Weak export markets and generally softer demand also are to blame but it is especially difficult to compete when chicken breast prices are some 18% below year ago levels. The chicken industry finds itself in the most precarious position of the past 20 or so years. It’s largest producer, Pilgrim’s Pride, is effectively operating in bankruptcy mode, its share price closed on Tuesday at 42 cents per share (52wk high of $29.59). The second largest producer, Tyson Foods, warned of significant losses for the quarter ending in December and its share price closed at a little over $5 (52wk high of $19.5).

Lower chicken breast prices are only part of the story. Broiler producers were able to offset some of the losses in the breast market by getting significantly larger returns from exports. Prices for leg quarters continued to rise through August of this year but they have declined almost 45% in the past two months, with prices dropping especially rapidly in recent weeks. With no offsets in place, the chicken industry is now facing mounting losses.

So what does this mean for chicken supplies for 2009? The latest USDA report provides some indication of the expected output for the broiler industry as well as implied US domestic consumption. After all, if the industry wants the American public to pay more for chicken, it will need to give them less and that’s what the USDA report indicates. Total production for 2009 is currently pegged at 36.3 billion pounds, 1.1% lower than a year ago.

While this may seem like a small decline, we had to go back to 1975 to find a year over year decline in chicken production. To say that the chicken industry is not used to cutbacks would be an understatement. Per capita consumption in 2009 is expected to be 84.2 pounds per person, down from 84.8 (-0.7%). As with other meat proteins, this hinges on the expectation that exports next year will decline but only moderately. Broiler exports for 2009 are forecast at 6.275 billion pounds, 6.6% lower than a year ago but still 1 billion pounds (+20.6%) higher than in 2005.

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