As Tyson Foods and other businesses reduce poultry output to increase margins and inflation-weary consumers choose chicken over beef and pig, chicken prices at U.S. grocery stores have reached record highs and are expected to stay high.

Tyson and Pilgrim’s Pride, two leading chicken producers, could see an increase in profits as a result of higher chicken prices, but consumers will feel the squeeze as they try to save costs by forgoing more expensive proteins. Profit margins for poultry producers in one index are at their highest level in a year.

Data from the U.S. Department of Agriculture shows that this year, for the first time ever, chicken consumption in the United States is predicted to surpass 100 pounds per person.

Consumption of beef is anticipated to decline to its lowest level since 2018, while prices rise as a result of reducing supplies of cattle. 

Reduced consumer expenditure has also caused pork consumption to reach its lowest level since 2015.

Tyson, a company based in Arkansas that sells all three types of meat, had to contend with a surplus of chicken after making enormous profits when the COVID-19 outbreak drove up the price of meat.

Six American chicken processing plants, employing close to 4,700 people, will be shut down this year by the firm in an effort to save expenses. After two quarters of operating losses, its chicken division probably earned a profit in the three months ending September 30, according to experts.

Reduced supply now benefits producers’ bottom lines.

According to U.S. government data, establishments that hatch chicken eggs in the country put 2.8% fewer eggs in incubators in the six weeks that ended on September 23 than they did a year earlier.

From the same time in 2022, when hatcheries put 3.6% more eggs in incubators, this was a stark contrast.

Over the six weeks ending September 23, chicken producers put roughly 2.7% fewer chicks for meat production than they had a year earlier, when there had been a 4.5% increase. According to U.S. data, cumulative placements for 2023 began to fall behind those of last year towards the end of May.

“They cut back,” said Bob Brown, an independent livestock market analyst. “That seems to have buoyed the chicken market.”

According to Brown, who monitors the index, an index of chicken prices and feed prices that measures the profitability of poultry producers in September reached its highest level in more than a year. Producer profits are improved by falling feed costs, while maize prices are almost at a three-year low.

This summer, chicken producers tried to limit the weights of the birds as part of “efforts to limit production and restore profitability,” according to Rabobank. Less meat is produced by lighter birds for consumers.

According to the most recent monthly U.S. Department of Agriculture data, retail prices for entire fresh chickens and bone-in legs inched closer to nominal records in August. Prices for drumsticks increased 10% from their nearly yearly low in February.

Additionally, wholesale prices have bounced back.

Due in part to anticipations of fewer chick placements, the U.S. government last month revised its forecast for chicken output in 2023 downward from August. Still, production is anticipated to exceed 2022.

After chicken supplies grew last year, producers made the decision to cut back on placements.

The company had to resell extra inventory at a loss because officials misjudged how high consumer demand would be for chicken in late 2022, according to Tyson CEO Donnie King in February.

“That was a failure on their part,” said Arun Sundaram, senior equity analyst at CFRA Research.

As the worst-ever U.S. outbreak decimated flocks of egg-laying hens and led to limitations on poultry exports, chickens reared for meat mainly escaped bird-flu illnesses in 2022.

According to Sundaram, increasing U.S. demand is now assisting in cutting down on surplus supplies. In the quarter that concluded on September 30th, he predicts Tyson’s chicken division would post positive margins of 1.5% before increasing to 4% in the following fiscal year. In November, quarterly results are anticipated.

“We’ve seen some recovery in chicken prices and we’ve seen some consumer prices start to level off,” Tyson CFO John R. Tyson told investors last month. “We probably would have expected that to take place sooner.”

Large supplies are still stored in freezers by businesses. Frozen chicken breast stockpiles in the United States reached a record high in August. In addition, Tyson stated this week that layoffs at a chicken operation in Wilkesboro, North Carolina, may extend to the second shift “in response to customer demand,” indicating persistent challenges.

The market for chicken may be threatened by further price hikes, according to Adam Speck, senior commodity analyst with Gro Intelligence.

However, people are still preferring chicken because there is a shortage of beef after ranchers decreased their herds during the Great Plains’ three-year drought.

“We should see improving demand for chicken going forward,” said Bill Densmore, senior director for Fitch Ratings. “We’ll see retail beef prices remain high.”

(Adapted from Reuters.com)

Categories: Economy & Finance, Strategy, Uncategorized