Facing a year of uncertainty

by Bryan Salvage
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KANSAS CITY, Mo. – Now that 2012 is coming to a rapid close, many industry folks are a mixture of optimistic and fearful of what 2013 may bring. Everyone would love to see the US economy show some signs of a more consistent recovery instead of spurts of sunshine shining through the clouds every now and then.

Each protein group will have its own set of challenges. For example, shrinking US cattle numbers plus the cost of beef will continue to challenge this industry in the coming year. As a result, running more efficient plants will be a major industry goal. The first half of 2012 was certainly the better half for the chicken industry, says Bill Roenigk, National Chicken Council senior vice president.

“Record high feed costs due to ethanol mandates and the drought during the second half of 2012 and undoubtedly at least for the first half of 2013, if not the full year, make any predictions about the chicken business in the New Year somewhat more difficult and a bit more precarious than usual,” he adds.

In 2009 when chicken production decreased 3.8 percent, the wholesale composite broiler price increased 6.2 percent. In 2012 with chicken production estimated by USDA to be off 1.2 percent from 2011, the composite broiler price will most likely increase about 8 percent from the year before.

USDA is forecasting about a 1 percent or so decrease for chicken production in 2013, Roenigk says. “Certainly, a modest increase in the wholesale price will not begin to offset the double-digit percentage increase in feed costs,” he adds. “If, however, chicken production is down 3 percent or more in 2013 as certain private analysts believe, the increase in the composite broiler price could begin to cover ballooning feed costs. But the question remains, will a possible double-digit percent increase in the wholesale price of chicken be enough to offset and cover record high feed costs?”

“The industry must find the proper supply and demand balance to achieve positive momentum in 2013,” he concludes.

I was captivated by an article written by industry veteran Steve Krut for the January issue of Meat&Poultry titled Resolving to Survive. In it, he states 2013 will be a year of uncertainty for many small meat and poultry processors. I believe this will apply to medium and large companies, as well.

During the slower winter months after enduring a ho-hum business year in 2012, some smaller processors are worried about having enough money to pay for their utilities. All small processors are concerned about the uncertainty they will face if the US falls over the impending fiscal cliff — which would result from tax increases, spending cuts and a corresponding reduction in the US budget deficit beginning in January if existing laws remain unchanged. If we take that leap, it is projected the deficit will be reduced by roughly half in 2013. This sharp decrease in the deficit (the fiscal cliff) will likely lead to a mild recession in early 2013, the Congressional Budget Office estimates.

Small processors are also very concerned about increasing health-care costs. The Patient Protection and Affordable Care Act (PPACA or Obamacare) has all businesses on edge because they don’t know what to expect cost- or quality-care wise. Meanwhile, private-insurance costs have been pricing many smaller businesses out of the market.

One small processor of a federally inspected plant says his major fear for the coming year is dealing with the unknowns — and one of the largest unknowns will be dealing with the impending tax-law changes. He’s worried about how he will be able to write off the cost of new equipment in the future. He is also worried about US Dept. of Agriculture regulation changes on the type and frequency of tests for new strains of E. coli. He’s concerned about both the high costs of tests plus the time that will be needed to take more tests and get them to the laboratory.

The largest concern for one small processor in 2013 is the money it will cost for inspection requirements regarding hazard analysis and critical control point validation.

But regardless of the challenges they face, just as they have during decades past — most smaller processors plan to weather the slowed economy and adjust to the ever changing realities of doing business as opposed to retiring or selling their businesses.

One comment from one small processor best sums up this hard-working industry’s attitude in facing the start of a new year — “I will do what I have to do to survive.”

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