Use Every Part to Maximise Profit, Says Expert Panel

US - Industry experts explain that poultry companies need to maximise the use of every part of the bird to stay in business - and that includes the feet, feathers and fat.
calendar icon 5 May 2009
clock icon 7 minute read

Poultry companies have found a market for everything but the cluck in the low margin, high volume business of chicken processing, reports Morning News covering north-west Arkansas.

The chicken industry averaged a four-cent per pound operating loss in 2008. Feed costs have subsided since the record highs of last summer, but they are still 40 to 50 per cent above historic levels, according to industry trade groups.

If profits are to return, analysts say, companies must push products and by-products into higher margin areas. Chickens or broilers on the whole are worth considerably more when dissected for their parts, said Richard Lobb, a spokesman for the National Chicken Council.

Commercial chicken is primarily raised as a lean meat protein for human consumption with the breast comprising about 20 per cent of the total live weight, said Paul Aho, poultry economist with Poultry Perspective. But that is only about one-fifth of the total bird, which gives poultry companies plenty of reasons to find other markets for the remaining parts, he said.

The wholesale price of whole birds has averaged 85 cents per pound for the past ten months. But when the bird is cut in half, the leg quarters can garner about 35 cents per pound when sold to Russia or China, while the breast is deboned and skinned for US consumption at wholesale prices of $1.30 per pound. If wings are cut out and processed, they can fetch as much as $1.50 per pound, according to the US Department of Agriculture.

The extra value found in the sum of the parts is why only about 11 per cent of the 36.5 billion pounds of ready-to-cook chicken produced last year was sold in whole bird form. About 41 per cent of chicken is sold as fresh parts ready to cook, while 48 per cent is further processed into everything from nuggets and boneless wings to pot pies, Mr Lobb said.

Chicken is mostly consumed in its country of origin, says the Morning News report. In a good year, 15 per cent of total US production will be exported. Analysts say 2008 was an exceptional year with 19 per cent exported for a cumulative value of $3.99 billion.

Russia and China each bought about $797 million of US chicken parts in 2008, which is three times more than Mexico and five times more than Cuba – the third and fourth largest customers – purchased last year, according to the Agriculture Department.

Feet and Feathers

Among exports to China were 988 million pounds of chicken feet and paws worth $296.7 million to American processors.

Braised chicken feet with soy sauce are a popular Chinese dish and the feet are also used in soups for flavouring throughout China and Malaysia, Mr Lobb explained.

The feet and paw market from China has been 'found money' for processors, who would have ordinarily ground the feet bones into meal for pet food, said Jeff Webster, director of Tyson Foods' renewable products division.

Part of Mr Webster's job at Tyson Foods is to seek out business partners and opportunities in other industries in hopes of providing Tyson higher profit margins for its by-products.

"Anytime we can push a product toward human consumption, it likely has a higher market value. The chicken feet are good example." he said.

"A penny found here and there can add up to millions for local processors in a year's time given the production volume," said Frank Jones, poultry specialist with the University of Arkansas.

Tyson Foods processes one billion pounds of feathers per year in its integrated poultry business. For every penny per pound the company earns on its feathers, it adds $10 million to its coffers.

"Feathers contains keratin, which is used in the biotech industry for shampoo and skin care products as well as bio-adhesives and non-woven materials such as wet wipes and baby diapers," Mr Webster said.

Bioplastic products such as trash cans, storage bins and plastic tubs are another use for the chicken feathers that Tyson Foods said it is exploring. While the diaper applications are about three years out, Mr Webster said Tyson could have an alliance for the plastic bins and resin applications soon.

"The bioplastic arena holds a lot of promise for the players who get there first. The upside potential is far better than the lower value derived from feather meal because of its limited use in animal feeds," Dr Jones said.

Pet Food Premium

"The best fruit for chicken companies is likely ... in premium pet foods"
Dr Frank Jones

Chicken processors also hope to carve a slice of the premium pet food market, reports Morning News.

For years processors have rendered blood, bones and other tissue and ground the product into meal, which is added to dry dog foods and other animal feeds. Tyson Foods has nine pet food facilities located near poultry operations – three in Arkansas.

Simmons Foods operates a rendering plant in Southwest City in Missouri, that blends blood and feathers into a higher protein dairy feed supplement, said company president, Todd Simmons.

Dr Jones said the best fruit for chicken companies is likely farther out on the vine in premium pet foods, a market that has shown resilience in recent months amid the steep recession.

Tyson Foods recently formed alliances with New Jersey-based FreshPet and Kemin Industries to manufacture higher quality pet foods in hopes of raising profit levels. These wet or canned foods contain livers, hearts or breast meat and will garner a higher price, analysts said.

Tyson plans to test the market this year. A processing line was recently dedicated in Tyson Foods' Scranton plant near Clarksville to produce pet food flavor enhancers, which are then sold to major pet food companies.

Farha Aslam, analyst with Stephens Inc., said poultry companies like Tyson Foods that have tapped the $17 billion pet food industry will likely be rewarded as increased consumer concern about pet food safety has led to tremendous opportunities for companies touting high quality 'food-based' not 'feed-based' products.

Tyson Foods does not publicly report revenues generated from its animal protein business unit but said most of the sales are included in the chicken segment because the pet food facilities are mostly located near poultry processing.

Fat to Fuel

The poultry industry routinely sells its fat content into the edible tallow market, where prices have averaged between $20 and $25 per 100 pounds this year. Lower grade fat known as yellow grease has averaged about $17 per 100 pounds this year, according to the Agriculture Department.

Tyson Foods launched two joint ventures in 2007 to turn its 2.3 billion pounds of annually produced animal fat into a higher profit renewable fuel. The first venture with Conoco Phillips to produce 175 million gallons of blended biodiesel was put on hold earlier this year following the cut in government subsidies.

Its Dynamic Fuels venture with Tulsa-based Syntroleum Corp. has one renewable fuel refinery under construction in Geismar, Louisiana, and is expected to come online later this year with an annual production of 75 million gallons in 2010. The renewable clean burning diesel or jet fuel from the Geismar plant is expected to boost Tyson revenues anywhere from $35 to $60 million, analyst predict.

Tyson Foods and Syntroleum each covered half of the $75 million price tag to build the Geismar plant. Analysts expect the Dynamic Fuels venture will have a seven to nine year pay back schedule for Tyson Foods, concludes the Morning News article.

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