Analysts say chicken processors like Tyson Foods have more pricing power amid lower-than-expected supplies as well as decent exports despite the recent bird flu outbreak.
Farha Aslam, an analyst with Stephens Inc., recently said chicken pricing fundamentals are positive which is good Tyson Foods and its competitors. She said chicken production is up 0.6%, much lower than the 2% to 3% predicted by the industry as well as the U.S. Department of Agriculture earlier this year.
Aslam attributes reduced supplies to the industry’s restraint to reduce bird weights in an effort to improve quality. She said there have also been numerous plant fires that have exacerbated the supply issues. She expects production this year will moderate around 2% with the near term seeing lower supplies.
Jeffrey Zaslow, analyst with BMO Capital Market,s also recently noted to investors that chicken prices are moving up. He said the chicken cutout margins – the sum of all the parts – rose 18% between February and March. March margins were up 16% from a year ago. Zaslow also attributes the margin gains to lower bird weights which reduces total supply as well as better demand in retail and export markets. He said the industry has seen an 11% surge in pricing power the last two months.
Zaslow said chicken margins are likely to move higher helped by lower feed costs and the production constraints previously mentioned. He said consumer demand for chicken is also strong despite abundant supplies of pork and beef, which are each priced lower than a year ago.
Consumer demand for chicken is a big reason prices are trending upward. Food insight company Technomic recently reported chicken is still the protein of choice for consumers. The report found chicken is being sought for breakfast and snacking occasions which is bolstering demand.
“Chicken’s adaptability will be on full display over the next few years as operators increasingly highlight this healthy protein … ” said Kelly Weikel, director of consumer insights at Technomic.
Technomic also found 47% of consumers say it’s important for restaurants to be transparent about where they source their poultry. Consumers also want to see restaurants offer more chicken entrees with ethnic flavors, which is an opportunity for Tyson Foods foodservice division to help its restaurant customers innovate new menu options featuring chicken.
Wholesale prices for boneless chicken breasts averaged $3.291 cents per pound in March, up slightly from the same month last year. USDA reports the the wholesale whole bird composite price at $83.40 in March, up from $69.50 a year ago. Retail composite whole bird prices are flat to year ago at $188.
Tyson Foods shares (NYSE: TSN) closed at $65.24 on Tuesday, up 78 cents on the day. For the past 52-weeks Tyson shares have traded between $55.72 and $77.05. The consensus target price for Tyson is $69.