Processing margins widen for Tyson Foods, other chicken processors

Poultry companies like Tyson Foods, Simmons Foods, O.K. Foods and Georges Inc. enjoyed fatter margins through the late summer months of July and August in part because of lower feed costs and price strength for breast and wings, according to Kenneth Zaslow, food analyst for BMO Capital Markets.

In a recent report to investors, Zaslow said breast prices jumped to a 15-month high in August amid foodservice promotions and reduced supply hindered by hot weather. Wing prices were up about 1%, but they are still price sensitive given the large supply of frozen wings in cold storage. He predicts wing pricing likely will remain relatively steady or increase through mid-October before seasonally declining toward the year-end.

The dark meat leg-quarter pricing weakened in August for the the third consecutive month. Zaslow estimated leg quarters will remain in the 20-cent to 25-cent range for the foreseeable future. He said weak domestic and export demand are responsible for keeping a lid on leg prices.

Chicken production rose less than 1% in August, most of which was from higher slaughter rates. Higher-than-expected production is linked to a slowdown in the export demand for hatching eggs, Zaslow noted.

For the full year Zaslow predicted U.S. chicken production would increase by 2% to 3% this year and about 2% in 2017. The September broiler production forecast from the U.S. Department of Agriculture for the total year is 40.902 million pounds of chicken, which would be an increase of 2.13% from a year ago.