Arkansas poultry, beef farmers hope for better 2014

Agriculture is still king in Arkansas despite being the home of the world’s largest retailer, a robust trucking industry and a quickly evolving start-up sector.

Farming is an $8 billion industry in the Natural State, according to Travis Justice, senior economist with the Arkansas Farm Bureau. But while the total receipts continue to rise, farmers report having only a fair year at best in 2013. But, as is the nature of farmers, they hold out hope for a better 2014.

CHICKEN TALES
Poultry comprises a lion’s share of the state’s net receipts from agriculture behind the production of Arkansas-based companies like Tyson Foods, Simmons Foods, George’s and O.K. Foods. Another half dozen poultry firms have processing facilities in state.

The production of poultry is valued in excess of $2.4 billion annually, with 1.2 million broilers and roughly 24 million turkeys grown and processed in Arkansas. Poultry integrators have reported a solid year in terms of profits, helped by lower grain costs, higher retail prices amid steady consumer demand.

In fiscal 2013, Tyson Foods’ chicken division generated operating income of $646 million, up from $484 million in fiscal 2012. Tyson achieved these results in spite of incremental feed expenditures of $30 million and $470 million, in the quarter and year, respectively. Donnie Smith, CEO of Springdale-based Tyson Foods, said lower grain costs with the recent bountiful harvest and lower market pricing won’t show up in production results until early second quarter of 2014.

Total chicken sales for fiscal 2013 totaled $12.296 billion, helped by a 1.9% increase in volume and a 6.1% hike in prices. Smith said Tyson captured share as the No. 1 chicken brand in the U.S. during the quarter, according to Nielsen. He said the company will continue its “buy versus grow” policy through 2014, as it works to keep excess supplies out of the freezer.

“We will continue to buy breast meat in the open market that goes into valued-added products, in order to keep dark meat surpluses from occurring. We will also work toward more product innovation with dark meat products,” Smith said during the earnings call with analysts.

FARMER TALES
Poultry growers from Berryville to Springdale said corporate strategies to buy chicken in lieu of growing it has come at their cost.

“This has been the worst year I have seen in the 12 years I have been growing. I invested $170,000 retrofitting three of my seven houses and had my flocks per year reduced to four instead of five. Cash was so tight I had to take a part-time job to keep food on the table,” said Casey Wilson, a Tyson Foods grower near Huntsville.

He said chick quality has also been more inconsistent this year which has created some volatility in the payout structure based on the tournament system used throughout the industry.

“My farm goes from the top to the bottom from one flock to next and my operations are consistent in these houses year-in and year-out. It’s a complete puzzle to me how these results can vary so widely,” Wilson said.

Randy Robinson has been farming for 30 years and operates 10 broiler houses for Tyson Foods. He gives 2013 a “C-” rating citing the longer layout times between flocks, which have cut his farm’s total production. He also raises cattle near Springdale.

Gene Pharr, a grower for George’s Inc. near Lincoln, said 2013 has been on par with his expectations, but he also cites a slight reduction in layout time between flocks and recent concerns over diseased birds.

A few years ago, Pharr invested in LED lighting in his poultry houses and that has reduced his energy costs by more than 60%. Pharr said that investment in the lights is paying off and helping the farm’s total bottom line. There are five houses on his farm and his biggest concern is the supply of birds he may or may not get, depending on production goals.

The average cost of operating a poultry house ranges from $100 to $250 per flock depending on barn size and age of the flock when it goes to market, according to Susan Watkins, professor and extension poultry specialist at the University of Arkansas in Fayetteville.

Jim Yell of Lincoln said he sold his four broiler houses and 20 acres of land nearly two years ago. Yell said that despite tedious management, the business was a losing proposition and it didn’t matter with which company they contracted. Yell has grown poultry for Tyson Foods, Peterson Farms and Simmons Foods throughout the past decade. Yell held on to his Angus beef cattle operation.

BETTER BEEF
Justice said that broiler farms often work in tandem with beef cattle operations in Arkansas to help boost overall farm profits. He said cattle production across the state is valued at $500 million, with some 1.7 million head. Roughly 95% of that herd is configured in cow-calf operations with an average herd size of 100 to 150 head.

“Coming off a two-year drought that forced some herd liquidation, cattle farmers got a little relief in 2013. We have had adequate moisture, sufficient grazing conditions and ample hay supplies all while calf prices have escalated on the shorter supply numbers,” Justice said.

Cattle markets are heading into the final holiday period of 2013 at record or near record price levels across the board, according to Darrell Peel, extension livestock marketing specialist with Oklahoma State University.

Justice said Arkansas cattle farmers will likely hold their herds steady into 2014.

“On the bright side, the immediate liquidation has been stemmed given the good forage supplies, but the cost to add cattle right now is very high and many farmers are standing down,” Justice said.

JERSEY AND ANGUS
Robinson, the cattle farmer near Springdale, said his cattle herd numbers about 140 and he sold off all of his calves this past summer when prices reached high levels. The summer rally in calf and feeder cattle prices added $20 to $25 per hundredweight to steer calves and feeder cattle since late May. That is equal to $100 to $200 additional per head, and much of that gain is attributable to improved growing conditions for corn and forage this year.

Yell said he bought a Jersey milk cow so his wife Connie could make butter, cream and canned milk for baking, but within two months they had a two year’s supply so he put one of his beef calves on her.

“This one Jersey has raised three calves for me this year which I sold at roughly 350 pounds. The going price at $700 or better was a nice boost to the farm income. We still run a herd of roughly 160 Angus cattle and plan to keep that number steady in 2014,” Yell explained.

Yell markets his Angus beef on half or quarter side and said consumer demand has been somewhat tepid given the higher prices for the grass-fed cattle. Beef prices overall have been high this year, but that has not kept export demand down.

ROBUST BEEF EXPORTS
Justice said the exciting story in 2013 for the beef industry has been robust export demand from Japan and the Pacific Rim region. Japan has regained its No. 1 position as the biggest importer of U.S. beef. The U.S. Meat Export Federation reported through October gross metric tons of beef sold to Japan increased 48% from a year ago to 178.68 metric tons valued at $1.017 billion.

Justice said because Arkansas cattle producers provide calves that eventually make their way into feed yards which are sold for slaughter, there is a trickle down impact to local farmers when exports are strong. One big factor to watch in 2014 is consumer push back from higher prices that could temper domestic demand.

Peel said cattle slaughter and beef production are falling as the market transitions into a much tighter supply situation in 2014. With that, cattle and beef prices are expected to push to even higher record levels in 2014. Justice said domestic consumers will still want hamburgers and steak, but they may not be ordering them at higher-end restaurants.

Market research firm the NPD Group said the restaurant industry expected price increases for beef will create a headache for restaurant-goers, but it’s likely to hit consumers even harder. NPD Group vice president Harry Balzer said that while only about 30% of what we pay at restaurants reflects the costs of food, around 80% of our grocery bill is food costs.

Retail all-beef prices averaged $5.35 per pound in October, up 7% from a year ago, according to the last record available by the U.S. Department of Agriculture. Wholesale prices rose 4.5% to $3.09 per pound. The net farm value totaled $2.74 per pound, up 2.8% from a year ago.

Experts predict those prices will escalate further into 2014 given tight feeder cattle and the smallest calf crop since 1940. Justice said the cattle industry has not yet turned the corner because it will take several more years to rebuild the herd from the sell off of the last couple of years. On a bright note, he said in 2013 beef exports finally surpassed the levels from the pre-2003 export bans related to Bovine Spongiform Encephalopathy, commonly known as “Mad Cow Disease.”

“It took the industry a decade to recover that export volume lost in December 2003. The sustained drought and record grain prices of the past couple years also weighed heavy on the beef industry, but barring some weather catastrophe or disease outbreak, 2014 should be better for many Arkansas farmers,” Justice said.