After a brutal year in 2011, when the chicken industry lost money by bucket loads, broiler industry executives are looking forward to something different in 2012: sustained profit. After all, the alternative is nearly unthinkable.
“There’s only one direction it can go,” says Paul Aho, a consulting economist in Storrs, Conn., who tracks the chicken industry closely. “Either the entire industry goes bankrupt, or it gets better.”
Aho thinks the industry could be profitable by the spring, and some observers are even more optimistic.
“The first quarter of 2012 will be the first good, solid profit we have had in four quarters,” says Bill Roenigk, chief economist for the National Chicken Council. Looking deeper into the year, he predicts: “All companies should be turning a profit for the first three quarters, at least.”
The reason for their optimism is simply production cutbacks that went into effect in the fall of 2011 are expected to carry into 2012, reducing the industry’s need for expensive corn and soybean meal and coming closer to matching actual consumer demand in an economy still mired in slow growth.
“Corn prices will go down and chicken prices will go up if there is any cut in production at all,” Aho says. “Any cut whatsoever will do the trick.”
The US Dept. of Agriculture is predicting that broiler production in 2012 will be about 2 percent less than in 2011, while turkey production will increase slightly. Aho and Roenigk both figure the broiler drop-off will be closer to 4 percent.
Bill Lovette, CEO of Pilgrim’s Pride Corp., Greeley, Colo., thinks the lower level of production for the industry as a whole should remain in place through the first half of the year – down as much as 6 percent compared to 2011. The back half of the year could be about level with 2011, coinciding with what are expected to be tight supplies of red meat.
“I’m cautiously optimistic about 2012,” he says.
Lovette notes that another powerful force will be keeping the brakes on the industry: the lenders who keep the money flowing. “Banks will press companies to manage their working capital appropriately,” he says.
Sanderson Farms of Laurel, Miss., has a unique calculation to make: how to hold the line while making room for production at a brand-new plant in Kinston, NC, the first plant built from the ground up in the industry in years.
“We fully expect demand to remain depressed during 2012 as a result of macroeconomic factors and don’t expect demand to improve materially until unemployment improves and consumers regain their confidence,” says Sanderson CFO, Mike Cockrell. “However, we planned Kinston many years ago and will continue to move that plant to full production. We have the growers in place and they are building chicken houses to support that new facility. We really can’t slow down that train given the planning and investments made by us and our growers.”
Cockrell says the additional production at Kinston will offset the cuts Sanderson is making at its other facilities. “The net result will be approximately 3 percent higher production by us during 2012 compared to what we produced in 2011,” he says.
The “weight” is over
Meanwhile, the National Turkey Federation is hoping to capitalize on the national concern with childhood obesity. NTF worked with former US Surgeon General C. Everett Koop on a study showing that substituting turkey for certain cuts of beef, pork or chicken saves an average of 108 calories per meal. NTF has launched an online “Meal Upgrade Calculator” to help parents swap their proteins and even take on dietary challenges outside the home.
“This interactive website gives parents the means to assess the weight status of their children and reduce the calories and fat consumed in meals served at school and in restaurants,” says Sherrie Rosenblatt, NTF vice president for marketing and communications. Leaders of the industry will discuss the program and consumer perceptions at the NTF annual convention in Tampa in February.
Both the broiler and turkey industries are looking forward to a good year in the export market. USDA is forecasting broiler exports at a healthy 6.9 billion lbs. in 2012, up slightly from 2011. Turkey exports are expected to total 620 million lbs., down from the 656 million lbs. estimated for 2011 but still well above the 2010 level of 582 million lbs. Per-capita consumption of turkey in the US is also expected to grow slightly.
Richard Lobb is a contributing editor based in Fairfax, Va. He formerly served as spokesman for the National Chicken Council.