Industry economic outlook
If the outlook in the poultry industry for 2009 and 2010 can be summed up in one word, it’s “volatility.
February 6, 2009- If the outlook in the poultry industry for 2009 and
2010 can be summed up in one word, it’s “volatility.” A trio of
analysts predicting industry trends told producers to expect continued
volatility in feed and fuel prices and possibly lower poultry
consumption. But although long-term forecasts are risky, they also said
the poultry industry is strong and could see improved conditions even
as soon as the latter half of 2009, barring unforeseen events.
The analysts were speaking during a Market Intelligence Forum at the International Poultry Expo. The forum was a joint effort by U.S. Poultry & Egg Association and the National Poultry & Food Distributors Association. Michael Donohue, vice president of Agri Stats, said that increased feed ingredient costs have overwhelmed gains achieved through improvements in productivity. Corn prices peaked at $7 a bushel last July and have since dropped, but it’s likely to be a long time, if ever, before prices dip below $3 again, Donohue said. Soybean meal prices also rose to unprecedented levels.
“Feed ingredient prices are going to remain very volatile for the foreseeable future. There’s nothing we can count on right now. The consequences of a bad decision, either on the way up or on the way down, are magnified,” Donohue said.
Increases and decreases in production, changes in feed formulas, and higher turnover at processing plants also contribute to the sense of uncertainty hanging over the industry, he added.
Despite these difficulties, the outlook is not all gloomy. “We’re still a strong industry,” Donohue said. “Things have gotten a little bit better in the last three or four weeks. I feel better about what things are going to be like in the third and fourth quarters because of cutbacks in breeder placements. But the volatility of food prices could be greater than we’ve ever seen.”
A much stronger link between the energy and agricultural sectors and the credit crisis of late 2008, combined with the downward pressure on prices and upward pressure on costs, suggest troubled waters for the next year or two, said Tom Elam, president of Farm Econ.
“It could very well be that the chicken industry can cope with $4 a bushel corn by adjusting production downward, but can we cope with $3 corn next year and $7 corn the year after? That would be extremely difficult for the poultry industry to do,” Elam said, adding that the large poultry companies are ill equipped to deal with financial turbulence.
“Volatility could be a bigger factor than higher input costs, and the key to survival is how well you can manage that volatility,” Elam said.
Ethanol is often fingered as the culprit behind rising feed prices, and government mandates in the renewable fuel standards program contribute to the overall market upheaval, Elam also noted.
But since corn acreage is not expected to change significantly, while usage mandates increase, the guaranteed demand floor for corn could lead to price volatility. “We could see corn prices go back to the $6 – $8 level over the next 24 months. It would take a combination of higher energy costs and a short corn crop to make that happen, but it could,” Elam said
Ethanol is not the only fuel-related issue, however. Corn and soybeans prices are closely correlated to the price of oil. “As long as oil prices stay in the $35 to $60 range that we’ve been trading in for the last few months, I don’t think we ought to have any serious problems with corn prices going up,” Elam said. “But who’s to say there won’t be another Middle Eastern war, or that Venezuela will decide to cut off all their oil exports. The oil market is incredibly sensitive to supply interruptions.”
He predicted that the second half of 2009 would look better than the first half, but that costs, in particular, will still be higher than those of a few years ago.
Paul Aho, president of Poultry Perspective, warned the audience that poultry is a luxury in the diets of many people around the globe, and that the worldwide recession means that overall consumption will drop. Although it is likely to increase in some higher-income groups as they shift consumption from beef and pork, those gains will be offset by lower poultry consumption in other groups. Egg consumption is likely to increase, however, as a cheaper source of protein.
“In my opinion this economic recession will find us having lower per capita consumption of chicken in the world. This is very rare. It may be a once in a lifetime happening,” Aho said. He was uncertain when the trough in consumption would be reached, and advised growers and processors to make contingency plans in case the downturn continues beyond the end of 2009.
Aho predicted that the chicken and turkey industries will thrive in the long run however, despite high energy and feed prices, due to the better feed conversion rate in the United States.
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