DENVER – Declining broiler production and advancing prices are signs the chicken industry is making its way back to profitability in 2012, according to a new report issued by CoBank, a cooperative bank serving agribusiness, rural infrastructure providers and Farm Credit associations throughout the US.
Several key events have helped spark the industry's resurgence, the report states. First, chicken producers have reduced the size of flocks. Chicken production is now on track to be at the lowest level in five years by mid-2012. Also, chicken companies have changed business practices. Recently, many companies have moved to shorter-term, fixed-price or longer-term, flexible price sales contracts, according to the report. The new trend represents a shift away from long-term fixed-price contracts that no longer provide chicken companies with a competitive advantage in an era of commodity volatility.
Finally, chicken producers have turned to futures and options contracts to hedge their purchases of inputs, according to the CoBank report.
“Chicken companies have had to revamp their standard business practices,” said Amy Gales, executive vice president of CoBank’s Regional Agribusiness Banking Group. “The industry is re-defining itself in the wake of extraordinary financial upheaval and pressures. Many of our customers are feeling cautiously optimistic about their future growth, but that optimism is the result of some very significant changes in the way they operate.”