It’s been a rough go for the chicken business. Over the last five years, major processors hemorrhaged money; because the processors own the birds, which are raised by contract producers, the companies have had to absorb the record feed prices caused by increasing biofuel production and weather-shortened crops; at the same time, due to the slumping economy, they haven’t been able to pass those costs along to consumers.
But recent financial reports suggest they’ve turned the corner. Pilgrim’s Pride, just four years removed from bankruptcy, earned $174 million in FY 2012, compared to a loss of nearly a half billion dollars the year before. In February, Tyson Foods reported first quarter earnings of $173 million, up 11 percent from the same period in FY12, in part due to a sharp climb in chicken prices.
“They’ve absorbed the losses, and they’re moving on,” University of Missouri Agricultural Economist Ron Plain told Ozarks Farm & Neighbor. “It looks like poultry production is going to be up 2.5 percent or so, maybe a little bit more, this year. The losses were huge, but they have been doing fairly well in recent weeks and it looks like demand is strengthening for poultry products.”
Dr. Plain said while chicken is still gaining market share in the protein section of the supermarket, per capita chicken consumption is actually declining after more than a generation of gains. “In the last five years, it has pretty well been steady to down a bit,” he said. “The higher feed costs we’ve had the last few years has forced cutbacks across the board in the meat industry and in particular, beef production has been declining for several years.” In essence, beef consumption is going backward even faster than chicken consumption.
Plain observed, “If we don’t have a good growing season this summer and corn prices go up rather than an expected drop, then there could be more firms in tough shape. But when large firms go broke, they don’t particularly go out of existence; they just acquire new owners.”
The integrators’ farmer contractors receive a margin and don’t have to worry about the price of feed of chickens; they do, however, face pressure from the integrators to maximize efficiency. Bruce Tencleve, coordinator of the poultry division for Arkansas Farm Bureau, told OFN it’s hard to make a profit on poultry buildings right now, particularly older houses. “A lot of companies want you to do upgrades on them,” Tencleve said. “They want you to always be spending money, to stay at the forefront of what’s new.”
The life expectancy of a chicken house is typically 20 years before they need renovation, and financing on them is usually for 10; some producers can make a house last for as much as 35 years. But, said Tencleve, “A big thing that we’re actually seeing in the poultry industry is those houses are never getting to 20 years of age before they’re asking for updates to be done; a lot of them are less than 10, so they’re never getting their original investment paid off before they’re asking them to invest more money.” While the integrators may not force their contractors to improve the houses, the investment becomes necessary to qualify for incentives.
