On the Farm Chickens Come Home to Roost



On the Farm Chickens Come Home to Roost

Industry Faces Triple Whammy: Too Many Birds, High Feed Costs And Falling Prices for Other Meats

By KAREN RICHARDSON and PETER A. MCKAY

Staff Reporters of THE WALL STREET JOURNAL

August 11, 2005; Page C1

The chicken has landed.

In the past two years, the bird had reigned supreme in America's meat freezer, helped by fashionable diet programs emphasizing consumption of lean protein. Breakouts of avian flu overseas bolstered demand for U.S.-bred chickens.

Hefty feed prices and an abundance of broilers -- along with now-tempting prices for other meats -- have cooped up the poultry rally, and the balance of power seems likely to shift to four-footed rivals. Chicken farmers, meanwhile, aren't exactly helping matters: They continue to breed an abundance of birds -- and big ones at that.

"It's probably going to be a few more months, but you're going to see a tentative glut of chicken in the market," says Christine McCracken, an analyst at FTN Midwest Securities Corp. in Los Angeles. "There could be too many pounds of protein out there."

[pic]

There are signs of weakness in chicken prices, says Michael O'Shaughnessy, a principal at agriculture-research company Urner Barry Publications Inc.

He says wholesale dark-meat chicken prices have remained strong as a result of export demand, trading at about 47 cents a pound lately, up about 18% from both last year's average monthly price and the five-year average. Cheaper Brazilian chicken is starting to take some of this market share. The price that wholesalers pay for white meat -- largely a measure of the U.S. domestic market -- is dropping: In August, white-meat prices have averaged about $1.37 a pound, off 46 cents, or about 25%, from the year-ago level, and about 10% below the long-term average.

The National Chicken Council, an industry association, expects domestic per capita consumption of chicken to rise about 1.7% in 2006, compared with 3.7% growth this year.

Yet supply in terms of weight and number of chickens is likely to rise by as much as 3.5% next year, according to forecasts offered by Richard Cogdill, chief financial officer at Pilgrim's Pride Corp.

This potential glut stems in part from the inertia of the chicken-production business. Chicken farmers often are fulfilling long-term contracts that set production levels years in advance. And restaurateurs -- mindful of Americans' big appetites -- play a role.

"It's more efficient to run a heavier chicken," explains D. Michael Cockrell, chief financial officer of Sanderson Farms Inc. of Laurel, Miss. Bigger chickens eat more feed but yield more meat, giving them the "plate appeal" favored by the chain restaurants that make up the industry's casual-dining market segment.

Analysts say beef and pork prices likely will affect chicken demand: Plenty of people prefer a nice chicken cutlet, but at a certain price point they'll just have a burger, thank you. At the Chicago Mercantile Exchange this year, contracts on live cattle are off about 7%, live hogs are off 18%, and pork bellies are off 12% -- all hurt by a glut of animals being slaughtered.

"Beef prices will, over time, affect our industry," says Mr. Cockrell. He expects grocers and butchers to feature more advertising specials on beef. "Whenever beef gets cheap, we generally do see less demand for our product."

Some stock investors have already started scratching around for another place to put their money. For instance, shares of Pilgrim's Pride of Pittsburg, Texas, are off 9% since it announced strong third-quarter earnings in late July. And bearish short-sellers account for around 15% of the stock of Sanderson Farms, the U.S.'s fifth-biggest chicken producer, even though Sanderson has hedged the price it pays for feed for the next several months. Tyson Foods Inc. is the country's top chicken seller, but it also does a brisk business in other meats, and that diversification should be chicken soup for its shareholders, analysts say. As of 4 p.m. yesterday, Tyson shares were down nine cents to $17.70 in New York Stock Exchange composite trading.

Several factors have intersected to make the past couple of years a boon to all the livestock industries. Aside from the Atkins fad, which has faded, beef prices soared last year as concerns over mad-cow disease shut the U.S. border to Canadian cattle. The prices of corn and soybean meal, which together make up about 60% of the cost of raising a chicken and represent between 30%-50% of chicken companies' costs, fell thanks to bumper harvests.

This year has been the opposite, with a drought in the Midwest expected to keep the size of the U.S. grain crop low. Corn prices have risen more than 15%, and soymeal is up more than 25% at the Chicago Board of Trade.

Grain traders have digested forecasts of rainy weather, but overall, growing conditions have remained bleak, says analyst Victor Lespinasse, CBOT floor analyst for A.G. Edwards. "As far as the market is concerned, the weather is getting better," he said. "As far as a lot of farmers are concerned, it's been a very tough year."

................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download