December 2014 Articles

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Estimated Feeding Returns in the Broiler Chicken Industry

Estimated Feeding Returns in the Broiler Chicken Industry Source: Ross Pruitt, Department of Agricultural Economics and Agribusiness LSU AgCenter
Net ready-to-cook (RTC) broiler chicken production has moderated in recent years from growth rates that frequently exceeded four percent prior to the early 2000s. Increased feed grain prices, excess supply, and the economic recession of 2007-2009 have contributed to modest production increases and two years of declines in 2009 and 2012. Estimated broiler chicken feeding returns to vertically integrated firms (VIFs) have been quite variable over the past several years but have strengthened since early 2012. Tight supplies of competing meats, increased demand and an improving economy have contributed to strong returns and record profits for VIFs that have allowed for consideration of new production facilities to be built and potential acquisition of related business entities.
It is unlikely that the broiler chicken industry will experience the type of annual growth it once experienced during the 1980s and 1990s due to entering the mature stage of the product life cycle. Overall U.S. broiler chicken slaughter capacity is little changed in recent years even though a few firms are currently building or considering new facilities.
The Outlook for 2015
VIFs are currently enjoying their lowest estimated ration cost since the 3rd quarter of 2010. The current strength of the estimated margin suggests that 2014 production should have been higher than the forecasted 1.6% increase, but that has not occurred. While the number of broiler layers and egg sets has been higher this year, it has not translated into an increase in the number of chicks placed with contract growers.
Broiler chicken VIFs have stated in recent months that they expect chicken profits to moderate in 2015 as the industry expands to at least a 3% increase in production relative to this year. Additional processing facilities combined with a larger breeding hen inventory will contribute to that expansion provided the hatchability issues that have hampered the industry this year are resolved.
A seasonal decline in the number of layers and egg sets has already began and will continue through early December. The number of layers was 2% higher than a year ago in September 2014 and slightly above the average for 2008-2012. Based on historical relationships between the number of pullet placements and the number of breeding layers, the number of broiler breeding layers could be
approximately 52.5 million in November and 53 million in December, an increase of 1.5% compared to a year ago. For early 2015, this relationship suggests a breeding layer inventory of over 54 million, an increase of 2% relative to last year early in the quarter and 3% late in the quarter. If that forecast is proven accurate, the number of breeding layers would be just slightly below the 2008-2012 average for the first quarter. With total chicken in cold storage at the lowest levels since 2007, there appears to be room for chicken production to increase without negatively impacting current price levels. Given the higher prices consumers have paid for beef and pork so far in 2014 (and still yet to come), consumers may soon switch to cheaper alternatives and result in moderating beef and pork prices.