March 2014 Articles

Archives by Months

Seasonal Price and Production Influences in the Broiler Chicken Industry

Seasonal Price and Production Influences in the Broiler Chicken Industry Source: LSU AgCenter Overview
Poultry production in the United States is comprised primarily of producers contracting with a vertically integrated firm to raise poultry. Contract broiler chicken and turkey production differs from egg production because contract producers provide labor, utilities, management and the buildings to raise poultry while the vertically integrated firm provides all other inputs – namely the birds, feed, medication and techni­cal assistance. In instances where broilers are produced on independently owned farms, the producers are responsible for providing all necessary inputs and make all marketing decisions.
In the broiler industry, contract producers’ exposure to price risk is minimized, but growers are exposed to production (poor poultry performance and decreased placements) and revenue risk. Since poultry is produced primarily in contract growing arrangements, there are few spot (cash) markets in which poultry is sold at the farm level, like is done with cattle or hog production. The minimal number of spot markets limits the pricing information available to producers and those interested in the broiler industry, and information related to the volume of poultry production also is somewhat limited when compared to other major livestock industries.
Although the majority of broiler production in the United States is on a contract basis, the U.S. Department of Agriculture’s National Agricultural Statistics Service and Agricultural Marketing Service regularly release information to assist in decision making by stakeholders in the livestock and poultry industries. The reliability of this information is variable since not all vertically integrated firms voluntarily provide information. As with most USDA data, information is subject to revision on a periodic basis, and many USDA reports are based on voluntary reporting. Supply/Production Information
The broiler chicken supply chain is highly coordinated, with scheduled production cycles to meet retail marketing campaigns. As little as eight weeks can elapse from the time an egg is hatched until the day the chicken is harvested and served to the ultimate consumer. Once a hen enters the hatchery supply flock at approximately 24 to 25 weeks of age, the hen will lay approximately five fertilized eggs weekly until approximately 70 weeks of age. Eggs are collected from contract growers’ farms and set in vertically integrated firm-owned incubators for the 21 day incubation pe­riod. Once an egg hatches, the young broiler chicken is placed on a contract grower’s farm for the grow-out phase, which can last from five to nine weeks but on average is seven weeks in length. Broiler chickens are then collected from contract growers’ farms, harvested, processed and sent to retail distribution channels. If necessary, frozen whole chicken may be placed into cold storage for a year, while frozen parts may be stored for nine months.
The monthly Chicken and Eggs report from USDA’s National Agricultural Statistics Service is the most comprehensive USDA report on the size of the breeding flock (hatchery supply) in the table egg and broiler chicken industries. USDA makes efforts to collect information from all known hatcheries, but the information collected may not reflect the entire broiler industry. This report contains information on the number of eggs laid during the month, average number of layers on hand for the egg and broiler industries during the month and estimated cumulative potential replacements for future months. The report primarily includes information on U.S. placements of young females into the U.S. broiler breeding flock, but there are some categories that reflect production occurring in the United States but intended for placement in other countries.
The Chickens and Eggs report also includes the number of pullet chicks hatched each month intended for placement in the United States. This provides the earliest glimpse into the size of the breeding flock six months into the future. Pullets are the young females that become the breeding flock after reaching sexual maturity at approximately 24 to 25 weeks of age. Once a broiler pullet reaches sexual maturity and begins laying eggs, the number of suitable eggs produced for hatching is approximately 165 eggs per layer (breeder hen). A broiler breeder hen is laying a fertilized egg approximately five times a week. For a pullet to be ready to produce eggs for the beginning of the peak production season in May, that female must be hatched in August of the previous year. This allows for its first offspring to be hatched in April and reach market weight as early as May.
Pullets begin to lay broiler hatching eggs at roughly six months of age and are kept in the breeding flock until approximately 15 months of age. Cumulative potential placements contained in the Chickens and Eggs report provides an indication of the size of the broiler breeding flock based on pullet chicks hatched. Although not every pullet intended to enter the breeding flock does, these estimates also provide an indication of potential expansion in the broiler industry breeding flock. Increases (or decreases) In the number of pullets available to enter the breeding flock may suggest expansion (or contraction) in the broiler chicken industry. The total number of broiler hens in the broiler hatchery supply flock is reported as the quantity of layers on the first day of the month and the average for the month. Size of the broiler hatchery flock provides an important indication on the realization of expansion plans that vertically integrated firms may be undertaking that is first reflected in the cumulative potential broiler-type pullet placements.
The number of broiler-type hatching layers (breeding flock) seasonally increases during the first and second quarter of each calendar year. The number of broiler laying hens retained in the breeding flock decreases in the third quarter because less production is needed in subsequent months.
The weekly Broiler Hatchery report provides information on the number of broiler-type eggs set in hatcheries and the number of broiler-type chicks placed for production in 19 selected states1 and the U.S. total. Information included in this report lags by one week to provide vertically integrated firms a chance to collect and submit data to the USDA’s National Agricultural Statistics Service. Because this report is weekly, it provides the first indication that placements are declining, which is later confirmed by the monthly Chickens and Eggs report through the number of broiler-type layers and broiler-type eggs hatched. Data for each of the 19 states is published for a six-week period since data for each state is subject to revision. Annual revisions are released only at the aggregate U.S. level. Unlike broiler-type chicks hatched nationally, Louisiana does not see the decline in the number of chicks hatched in the fourth quarter of each year. This reflects the needs of vertically integrated firms in the state for a constant supply of chickens throughout the year and the time for those chickens to reach slaughter weight. Once chicks are placed with contract growers, it takes five and a half to eight weeks for the birds to reach market weight. This allows contract growers to raise four to five and a half broiler flocks per year. The final weight at slaughter varies by each complex of the vertically integrated firm because certain vertically integrated firm complexes are raising birds for a specific market or customer (rotisserie bird versus further processing for the quick service market). As a result, there is more variation in the final weights of birds than the cattle or hog industries. A vertically integrated firm may have a contract with a quick service restaurant and may decrease final weight of the broiler to coincide with a marketing campaign by that restaurant. This type of marketing agreement illustrates the coordination between vertically integrated firms and food distributors that often occurs and begins well in advance of when the marketing campaign transpires.