Poultry sector pullback expected, to hoist profits

by The City Wire staff ([email protected]) 151 views 

Poultry companies like Tyson Foods and Pilgrim’s Pride along with independent firms such as Simmons and OK Foods are expected to pull back poultry production in hopes of bolstering prices and margins on chicken parts, according to an industry analyst and insiders.

Companies have steadily increasing chicken production over recent months hoping to capture more consumer dollars amid record high beef prices. Broiler production increased 3% in December from a year ago because of higher slaughter and bird weights, according to USDA reports.

BMO Capital Markets analyst Kenneth Zaslow expects the recent poultry expansion to slow. Although production should continue to increase for the foreseeable future, supply expansion likely will slow from fourth-quarter levels, Zaslow said in a note to clients.

“The industry can only extend the productivity of birds for so long,” Zaslow notes.

He predicted the smaller breeding flock will slow production growth to roughly 2% in the first half of 2014. One key metric used to measure future production are chick placements, which rose by 1% in December, pulling back from 3% to 4% pace recorded the past fall.

“The increase in chicks placed should remain somewhat limited as lower hatchability continues to mitigate the increase in egg sets,” Zaslow said.

Local poultry growers polled in December reported roughly a 21-day lay-out period in between flocks for the most of last year. They do not want to see fewer chicks placed as that will further reduce their farm income. But poultry companies saw their operating margins tighten in December on softer wholesale chicken prices, particularly breast meat and leg quarters. At the same time the companies also worked through their supplies of higher priced grains.

Sanderson Farms executives said last month that the softness in the boneless breast market reflects the weakness in the market for protein consumed away from home and higher chicken production numbers throughout the last quarter of 2013.

While foot traffic through food service establishment remains challenged by macroeconomic conditions, the spike in boneless breast late last May was triggered by menu shifts featuring chicken products at fast-food and casual dining venues. Prices subsided as the year progressed, with breast meat prices averaging some 40 cents below the $2-per-pound industry benchmark.

Zaslow expects lower feed costs in conjunction with the a slight pull back in production to help improve chicken prices in the coming months and fuel better margins — above historical averages going forward.

Springdale-based Tyson Foods will reports its quarterly profits on Jan. 31. Wall Street analysts expect the meat giant to earn a consensus 65 cents per share, up from 48 cents a year ago. Revenue is expected to top $8.78 billion, up 4.5% from the same period last year (October through December).