The industry, along with other animal protein sectors, suffered greatly when feed prices exploded last summer. Chicken companies — like pork producers — had been poised to grow in early 2012 as the econcomy came out of the “Great Recession” and feed costs appeared ready to moderate. The drought of 2012, of course, de-railed those plans and the broiler breeding flock reached its smallest size in 16 years in November.

As can be seen in the chart at right, that low point was a combination of normal seasonal variation plus what we currently believe is a trend reversal. There has never been a clear cyclical component for broiler output though the two-year patterns since 2008 may be establishing one. If that is indeed the case, then late 2012 likely marks a cyclical low as well.

Broiler Hatchery Flock

From October to January, however, US poultry companies added nearly 2 million breeding hens (almost 4 per cent) to the breeder flock. Only once before — in 2010 following the decline driven by Pilgrim’s Pride’s bankruptcy — has the October-January increase been that large. Further, the 51.24 million birds on hand in January represents a 1.6 per cent yr/yr increase. We fully expect further additions when February 1 inventories are released in the monthly Chicken and Eggs report. Readers can access it easily at here.

USDA’s current forecast is for US broiler production to increase by only about 0.7 per cent, year-on-year, in 2013. But that figure is a tale of two halves with first half output only fractionally higher, Q3 output up almost 3 per cent and Q4 production 2.2 per cent higher than in 2012. Those increases, of course, are highly, highly dependent on the development of the 2013 corn and soybean meal crops. Remember that both poultry sectors are much more dependent on soybean meal prices than are the other meat proteins as their diets contain higher protein levels. While corn prices are still important, recent questions about the South American soybean crop are more critical for broilers than they are for the pork sector. The beef industry uses far less soybean meal than the others.

This is a classic “fill the void” move by the species that can best react to changing market conditions. The chicken’s shorter reproduction cycle and shorter life span prior to harvest leave the sector in the enviable position of being able to respond far more quickly than the competition. Add in the fact that one more "produce or not produce" decision step — ie. placing eggs in incubators — exists, and it is easy to see that increasing the breeder flock is a very good strategic move at this point. Those hens are not cheap to maintain but there is no commitment to commensurately larger numbers of bird on feed yet. That decision can still be made as the planting and growing seasons progresses. We think a good crop could lead to even larger increases in the second half of the year if meat and poultry demand solidify.