This is an industry that is notorious for slow reactions to adverse economic times. To some, that seems foolish or reckless but it is built on the long-term history of the industry. Those watching the meat and poultry sector for just the past few years may not realize just how different today is from yesterday in the broiler sector. As can be seen in the top chart at right, broiler slaughter, production and domestic consumption have been roughly flat since 2004 save for the costinduced dip in 2009 that was driven primarily by the bankruptcy and associated complex closures at Pilgrim’s Pride.

But prior to 2004, annual broiler output growth was a steady, inexorable climb. DLR author Dr. Steve Meyer got quoted pretty widely in the early ‘00s when he quipped that there were now three certain things in life: Death, taxes and 3% more broilers. Dr. Abner Womack, long-time director of the University of Missouri’s Food and Agricultural Policy Research Institute claimed once that the institute made its broiler forecasts by simply matching a ruler to the line on the historical chart and extending it into the future. Such was the dependability of broiler output — and, more important, market — growth. In such an environment, market share is the key performance variable. If a company had to give up some profitability in the short run to maintain market share, so be it. The market would soon grow large enough to bring profits back and the company could capitalize on its maintained share of the now larger market. Efficient operations and active product development were keys to success.

That has changed sharply in the past 8 years. A ‘stagnant” market in terms of size means that one cannot count on growth to solve profit challenges. But chicken company management has, on several occasions, not swayed from its market share paradigm thus driving some periods of extreme losses as they played “chicken” (you knew it was coming, didn’t you?) to see who could survive the longest. One such episode ended in May of 2011 when bankruptcies at several smaller companies and reductions among the giants (Tyson, Pilgrim’s/JBS, Sanderson, Perdue) began to moderate broiler production. After nearly a year of such cuts, some managers had to be wondering if they would ever see results as chicken prices simply never fired until April and May of this year. And now they are faced with another cost increase. Will it be another game of “chicken” or a bottom-line driven, timely reduction in output?

It is too early to determine the answer with any certainty. Egg sets and chick placements are running very near one year ago but those levels were 6, 7, sometimes 8% lower than in 2010. Can we expect additional cuts? As the bottom chart at right shows, the broiler hatcher flock was built more than a normal seasonal pattern would have suggested in April and May as the sector actually moved toward expansion. But higher feed costs caused larger-than-normal reductions in the hatchery flock in both June and July and it remains over 6% smaller than one year ago.

The chicken’s short production cycle will serve it well if feed prices return to normal in 2013. An expansion decision can result in a new breeding flock replacement chick in just 3 weeks. That chick will begin laying at 18-24 weeks of age. Those eggs will hatch in 3 weeks and a finished broiler will go to harvest 5-7 weeks after that. Roughly 33 weeks from decision to result. Pork producers can respond no quicker than 10 months even if they have a breeding gilt ready to put in the herd. A more reasonable period is 11-12 months. Beef cattle take two years to go from breeding to beef. Even with significant reductions this year, broiler companies will be in a position to respond far more quickly to any cost reductions — and fill any voids left by reductions in pork and beef output.