CME: Broiler Producers Opt for Softer Pricing for Breast Meat

US - While there is broad expectation among market participants and analysts that broiler supplies are set to increase in the coming months, the latest USDA chicken supply data shows that the pace of future supply growth has slowed down in recent weeks, write Steve Meyer and Len Steiner.
calendar icon 27 September 2013
clock icon 4 minute read

The latest USDA ‘Broiler Hatchery’ report pegged broiler egg sets in the 19 state area (96 per cent of national supply) at 190.7 million units, 1.5 per cent more than a year ago but significantly less than the levels we saw in July and August. In large part the decline is seasonal but there are signs that a number of other factors are impacting producer decisions for future expansion.

Feed costs: Corn prices have declined sharply in recent weeks but the price of soybean meal is down only modestly from a year ago. The cash price of #2 corn, Omaha Basis, was last quoted at $5.03/bu., down 31.7 per cent form a year ago. December corn futures are currently hovering at $4.50/bu. and July 2014 corn is also under $5. On the other hand, the cash price for 48 per cent soybean meal, central IL basis, was last quoted at $475/ton, down 4.8 per cent from a year ago.

Soybean meal prices are important for poultry feed. While the ratio of corn and meal in a poultry feed mix is almost 3/1, on a value basis corn and meal are about the same. In other words, even though meal accounts for about 25 per cent of the volume in poultry feed, it accounts for roughly 45 per cent of the value (based on current prices).

December soybean meal futures were trading in the $350/ton range in early August but last night closed at $417/ton. And there is growing concern about meal prices going forward. Soybean supplies are expected to remain tight at least into spring when new South American supplies become available.

In recent years, soybean meal has had to carry a larger share of the value as soybean oil prices remain constrained by low priced palm oil values and weak biodiesel demand. In summary, feed costs are down for poultry producers overall but the decline may not be as larger as what was hoped for in August, largely due to the rally in soybean meal prices.

Breast meat: The price of breast meat was flying high in the summer, thanks in large part to some timely foodservice promotions. The price of boneless/skinless breast meat (USDA quote) climbed a little over $2/pound in May. The last time breast meat prices were over $2/pound was in the summer of 2004.

Prices have pulled back by almost 60 cents since those heady spring levels and the expectation is for breast meat prices to remain under seasonal pressure into the fall. To be sure, producer margins still are quite strong as the broiler cutout is near all time highs and about 17 per cent higher than a year ago. But heavy freezer supplies and relatively high egg sets in July and August will likely weigh on prices this fall and winter.

Bottom line: It appears that for the moment broiler producers have opted to take the foot off the gas pedal on high soybean meal prices and softer pricing for breast meat. Export markets remain a key wild card. Mexico is our top chicken export market at the moment and last summer they decided to impose anti-dumping tariffs on US chicken. The implementation of the tariffs was delayed due to avian flu induced shortages but the threat of tariffs and weak exports remains a threat going forward.

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