The poultry industry has taken the long road to recovery. After the poultry market collapsed in 2008 along with the general economy, poultry producers began a comeback in 2010. By 2011, growers scaled back supplies and struck the right balance between production and demand. The industry was finally able to entertain the prospect of profitability in 2012.

The poultry industry began the first half 2012 on a high note. But by the second half, the situation turned. The worst drought in 50 years, record-high feed costs and the diversion of corn into ethanol production slowed the industry’s rebound. This year does not compare to the challenges of 2008, but poultry-industry stakeholders are concerned that market conditions sparked by the drought of 2012 will pressure the industry in 2013.

“If you spoke to anyone in the industry, they would describe the year as concerning on a number of fronts,” says Joel Brandenburger, president of the National Turkey Federation. “Certainly, nothing happened this year that was as catastrophic as what we saw in the second half of 2008 and in 2009. But what you have seen is another run-up in input and feed costs.”

Feed costs surged in 2012, but unlike the price spikes of 2008, prices didn’t come down very far off the spike, Brandenburger says. “In ’08 they spiked very high, and then by the end of the year came down very sharply,” he says. “This year they spiked, and they haven’t come off much more than a dollar from the high point. We’re looking at substantially higher feed costs this year.”

Granted, the situation is not as dire compared to 2008, but industry stakeholders are on high alert to the troubling trends, according to Brandenburger.

“There are some troubling trends, but you would find that they’ve already taken a hard look at their marketing and production plans for 2013 and are beginning to react accordingly,” Brandenburger says. “I don’t think you’re going to see uniform action across the board – there may be some companies that have reason to increase production.

“Industry wide, you’ll probably end up seeing a small decrease in production for next year,” he adds.

The turkey industry saw prices soften for some turkey parts. There were sharp decreases in prices for dark meat, wings and breast trim, Brandenburger says, and that is a troubling trend.

“I think most people in the industry feel that this softness could last into 2013,” he says. “So, there’s some concern as we start the New Year.”

The first half of 2012 was the better half for the chicken industry, according to Bill Roenigk, senior vice president of the National Chicken Council. But the forecast for profitability in 2013 is precarious, at best.

“Record-high feed costs during the second half of 2012 and undoubtedly at least the first half of 2013, if not the full year, makes any predictions about the chicken business in the New Year somewhat more difficult and a bit more precarious and the forecast becomes even more interesting,” he says.

Ultimately, the industry will be challenged again to find the proper supply-and-demand balance to achieve positive momentum in 2013.

“In 2009 when chicken production decreased 3.8 percent, the wholesale broiler price increased 6.2 percent,” Roenigk says. “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. Certainly, a modest increase in the wholesale price will not begin to offset the double-digit percent increase in feed costs.

“If, however, chicken production is down 3 percent or more in 2013 as certain private analysts believe, the increase in composite broiler price could begin to cover ballooning feed costs,” he adds. “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?”

Expanding exports

Given the fuzzy picture of the domestic poultry market, exports will be critical to the vitality of the poultry industry.

Exports have been a great story for the turkey industry, NTF’s Brandenburger says.

The turkey industry recorded 583 million lbs. of exports in 2010, which increased to slightly more than 700 million lbs. of exports in 2011, Brandenburger says. In the first quarter of 2011, the industry recorded just less than 160 million lbs. of turkey meat exported, compared to 180 million lbs. of turkey meat exported in the first quarter of 2012. This represents a 13 percent increase in turkey-meat exports.

“I do know that in the fourth quarter some countries that have not been buying as much began to buy again,” Brandenburger says. “There’s reason to be optimistic the export story will be at least as positive this year as it was last.”

A robust and expanding export market is critically important to the economic viability and well-being of the US chicken industry, as 19 percent of chicken produced in the US is exported, says Tom Super, NCC vice president of communications. Exports of poultry meat for January through September this year reached 3.04 million metric tons with a value of $4.032 billion, up 6 and 14 percent respectively from the comparable period in 2011, according to data from the USDA’s Foreign Agricultural Service.

“Export markets for chicken are becoming more diversified, so the industry must continue with product diversification to take advantage of these and other new opportunities,” Super says.
Renewable fuels review

The Renewable Fuel Standard was the subject of fierce debate in 2012. Tighter corn supplies prompted calls for a review of the RFS and a waiver from the federal ethanol mandate. The poultry industry’s efforts to convince the Environmental Protection Agency to waive the RFS for 2012 and part of 2013 was met with fierce opposition from the renewable fuels industry and would eventually fail. Stakeholders in the poultry industry expressed disappointment by the EPA’s decision in November to deny an RFS waiver.

“NCC is indignant that EPA chose to ignore the clear economic argument from tens of thousands of family farmers and poultry producers that the food-to-fuel policy is causing and will cause severe harm to regions in which those farmers and producers operate,” NCC’s Super says. “More than a dozen poultry companies since the second renewable fuels standard was implemented in 2007 have filed for bankruptcy, been sold to other companies or have simply closed their doors.”

In October, Zacky Farms LLC filed for Chapter 11 bankruptcy protection with the United States Bankruptcy Court for the Eastern District of California in Sacramento, Calif. Cagle’s Inc. filed for bankruptcy in October 2011 after several years of significant operating losses. Cagle’s filed the petitions in the US Bankruptcy Court for the Northern District of Georgia in Atlanta, Ga. Cagle’s had been operating for more than 60 years.

Brandenburger said the EPA’s decision while disappointing, didn’t come as a surprise. He says the regulation would have made it impossible for EPA to grant a waiver.

“It was created as a political process,” he says. “It was written so that it would be almost impossible for EPA to grant a waiver.

“The fact that the EPA did not grant a waiver in a year with a drought like this shows the system is, for all intents and purposes, rigged,” Brandenburger adds. “I’m not saying anyone did anything inappropriate at EPA, I’m just saying that the law is written to make it almost impossible for EPA to grant a waiver. That’s very troubling. If not this year, when would you possibly do it?

“Fundamental reform of the RFS is going to be essential going forward. We have quite a bit of confidence that Congress is going to take this issue up next year,” he continues.
Inspection shift

Changes to poultry inspection rules also will be on the poultry industry’s regulatory radar for 2013. Under the proposed program, company employees in most chicken and turkey slaughter plants would have the responsibility for checking eviscerated carcasses for visual defects such as bruising and sorting out those that are unlikely to pass federal inspection. A single federal inspector would be stationed at the end of the line, just before the chill tank, to conduct a final visual inspection.

Additionally, other USDA personnel will work in the plant, but off the line, to ensure that the plant is meeting its pathogen reduction program and its Hazard Analysis and Critical Control Points (HACCP) program. A USDA pilot program designed to test the new system was limited to 20 chicken plants and five turkey plants.

“The exciting part about it is the food-safety record out of those model plants was excellent – every bit as good as the traditionally inspected plants, in some cases better, Brandenburger says. “By opening it up to everybody who’s qualified it will allow in most plants, the USDA inspectors, to be redeployed so that they’re looking more at the microbiological inspection activities that can best help control pathogens on raw poultry, and allow the plant workers to do some of the routine non-food safety related sorting that the government inspectors had previously been responsible for.

“It is a great way to take the next big step forward in modernizing and making the inspection system as science-based as possible,” he adds.

NCC also supports the move toward a scientifically based approach to poultry slaughter that more closely reflects Hazard Analysis and Critical Control Point principles, Super says. However, NCC suggests the proposal’s success depends on additional clarifications to the proposed rule and illustrations of how it will be implemented.

Specifically, NCC’s comments: Recommends necessary implementation procedures; address the proposed sampling requirements; recommend changes to the inspection process for ready-to-cook standards; explain why avian leucosis is not a public health concern; recommend special training regarding septicemic and toxemic conditions; explain why line speed should not be arbitrarily limited; address worker safety concerns; request clarification regarding online and offline antimicrobial use; and address chilling requirements.

NTF’s Brandenburger says antibiotic use in the industry and how those drugs are regulated also will be a topic on the Federation’s radar in 2013.

Ongoing animal welfare

The poultry industry has a full plate of issues and concerns to monitor in 2013, including animal welfare. The past year has seen animal welfare activists make significant advances in their agenda to transform conventional food animal production. The poultry industry has had its share of undercover video “exposes” and was not immune to the pressure activist groups exerted on the industry to force change in production practices. Nevertheless, animal welfare will remain a priority for the industry.

“The chicken industry has come together on a specific set of expectations that will ensure that the birds they raise are taken care of with the highest standards starting at hatch,” Super says. “Since healthy, top-quality animals are needed for food, proper treatment is not only an ethical obligation, but it just makes good business sense.”

The NCC Animal Welfare Guidelines and Audit Checklist were developed to help producers and processors ensure the welfare of birds. Super says the guidelines have been widely adopted within the chicken industry.

“These guidelines cover every phase of the chicken’s life and offers science-based recommendations for proper treatment,” he adds. “We’ll be working to revise and update them in 2013.”

The National Turkey Federation also developed a comprehensive set of welfare guidelines with an audit tool, according to Brandenburger. These items are updated every two years.

“We’ve found that this document has been very successful,” Brandenburger says. “We’re very excited about what we’ve done and continue to do in that area.”