CME: 2013 Witnesses Dramatic Change in Turkey Placements

US - The focus of this report for the most part is the red meat industry but we also often talk about broilers (a big competitor) and corn (a major input) in that context, write Steve Meyer and Len Steiner.
calendar icon 28 November 2013
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In the big scheme of US meat protein production, turkey is relatively small but, for this one week of the year, it is the focus of the retail meat case.

So how is the turkey industry doing? There are both good news and bad news. The good news is that feed costs are finally coming down and this should help producer margins in the coming months.

Furthermore, the cutbacks that the industry put in place during much of 2013 will limit the supply of turkey coming to market in the next few months.

The chart below shows the dynamics of expansion/contraction in the turkey industry and the impact this has on the supply of turkey meat coming to market. The red line is the year over year change in the net placement of turkey poults.

The change in placements this year has been just as dramatic as the sharp contraction of 2008-09. In October, USDA pegged net poult placements at 21.115 million, down 8.5 per cent from the previous year. For the past three months, poult placements have been down 6 per cent.

Earlier in the year, poult placements were running as much 13 per cent below year ago levels. It is important to recognize that the turkey industry is more similar to hogs than broilers in terms of production growth lags.

It takes about 5 months for the poults to come to market, which is why in the chart above we have lagged turkey production by about 5 months. The production cutbacks made in June are only now starting to show up in the market (green line in the following chart).

The relationship between poult placements and production is pretty strong and based on placement numbers, it is likely we will continue to see turkey production numbers remain well below year ago levels through the first half of 2014.

With low feed costs, producers will have an incentive to increase their utilization rates so the production numbers may not fall as much as what placements indicate.

The bad news for the turkey industry remains demand. According to calculations from Ron Plain at Universtity of Missouri, turkey demand in the last 12 months has declined 3.6 per cent from a year ago while all other meat proteins have gained.

So while production cutbacks should help support prices, longer term the industry needs to focus on fixing demand, which is easier said than done.

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