DENVER – A new report titled US Poultry Outlook: This Time Things Are Different by CoBank’s Knowledge Exchange Division said that after record profitability since 2012 the poultry industry could be under pressure with meat prices declining and growing supply of the product.
However, CoBank’s lead economist for animal protein Will Sawyer said looking at downturns in the poultry market that happened a decade ago drove significant changes, strengthened the industry and made it much more resilient to a potential market decline.
“When feed costs and a weak US economy drove the sales of many chicken companies 10 years ago, the remaining companies and management teams knew the old way of operating couldn’t continue,” Sawyer said. “With the subsequent changes to pricing structures, capital structures and the overall approach to production and profitability, the outlook for the next downturn is much brighter.”
The bank projected 1.5 percent growth for chicken production, which is below the 2.5 percent average growth for the last five years.
Industry leaders are also in a better position than in 2008 and 2009. According to CoBank, the average chicken producer has as much cash as debt on hand, which makes farmers able to withstand downturns in chicken prices and margins.
“Industry pricing is likely the biggest structural shift in US chicken production,” CoBank said. “It has allowed producers to more quickly pass on changes in feed costs, which allows them to more effectively manage the primary driver of earnings volatility. The expansion of cost and other pricing contracts that incorporate a component where chicken prices can quickly reflect changes in input costs has been significant.”
CoBank also stated that the current outlook on pricing for corn and soybean meal should continue in 2019.
“With good visibility for production costs, the outlook for chicken producer margins is better in 2019 compared to 2018,” the report continued. “The domestic and international demand environment looks favorable for US chicken producers.”
CoBank is a $131 billion cooperative bank serving agribusinesses and providers of rural power, water and communications across the United States.