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U.S. chicken sector boosted by fast-food items, costly beef

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(Globalpost/GlobalPost)

By Bob Burgdorfer

CHICAGO (Reuters) - This is a good year to be in the U.S. chicken business. Profits are up, production and prices are rising, fast-food restaurants are promoting chicken dishes, and feed costs appear headed lower thanks to expected large U.S. corn and soybean crops.

High beef prices also have chased many supermarket shoppers to more-affordable chicken.

Healthy profits are expected for chicken companies this year, a sharp turnaround from two years ago when the industry was hurt by the recession and high feed prices.

Surging sales pushed wholesale prices for chicken breasts, the industry's key product, past $2 a pound this spring for the first time since 2004. A USDA report this week shows benchmark breast prices up 36 percent from a year ago at $2.18-1/2 per lb.

"It's the best of both worlds because we have grain prices going down and chicken prices going up. We are looking at a great year for chicken companies," said Paul Aho, economist with the consulting firm Poultry Perspective.

Analysts predict earnings at giant meat producer Tyson Foods Inc will surge to $2.11 per share this fiscal year from $1.58 in 2012, according to ThomsonReuters I/B/E/S. Forecasters expect Sanderson Farms earnings will more than double to $5.67 per share from $2.35 in 2012, with Pilgrim's Pride Corp profit jumping to $1.68 per share from 70 cents in fiscal 2012.

Tyson also produces beef and pork, while Pilgrim's and Sanderson are strictly chicken.

The industry's bottom line should get a boost from falling feed prices. Futures prices indicate corn should sell for below $6 a bushel after the fall harvest and into 2014. Also, USDA is forecasting the farm price for corn in the 2013/2014 crop year (September-August) at $4.40-$5.20.

"We are going to have more corn. We don't know if it will be $4 or $5, but it is not going to be $7," said Aho.

U.S. chicken companies feed flocks about 1.2 billion bushels of corn a year and the soymeal equivalent of 500 million bushels of soybeans.

"Chicken fundamentals remain extraordinary," BMO analyst Kenneth Zaslow said in research report last month. But the report warned that U.S. corn and soybean crops were not yet far enough along to assume feed costs would stay low.

PRODUCTION SLOWLY GOING UP

Chicken companies are responding to prosperity by boosting production. The U.S. Agriculture Department predicts a 2 percent increase this year from 2012 and a 3 percent increase in 2014.

No. 4 U.S. producer Sanderson Farms said it has returned to full production this month at its nine plants for the first time since 2011. Tyson Foods said it tries to balance supply with "forecasted demand."

Companies are being hindered from increasing production even more because recession, drought, and high feed prices in recent years had them cutting breeding flocks. Also, eggs needed to rebuild those flocks have been sent to Mexico, which is repopulating flocks decimated by avian influenza, or bird flu.

Mexico destroyed more than 26 million chickens in 2012 and early 2013, and has been buying millions of U.S. eggs, according to Mexico's Ministry of Economy.

U.S. producers would "like to produce more chickens but we can't get more hatching eggs ... because we don't have the breeder hens laying eggs," said Bill Roenigk, chief economist at the National Chicken Council.

CHICKEN SELLING FAST AT FAST-FOOD

Restaurants have helped drive the chicken industry's prosperity, with new products such as McDonalds Inc's chicken McWraps and Wendy's flatbread chicken sandwich. Last week, McDonalds' said its U.S. sales in May were up 2.4 percent from a year ago due in part to its "wide range of chicken options."

"I think boneless breasts should remain relatively strong through the summer," said Mike Cockrell, Sanderson's chief financial officer. He said restaurants "won't continue promotions forever but these items should stay on the menu."

Supermarket chicken sales have been robust, with record high beef prices pushing shoppers toward lower-cost alternatives, Tyson Foods and Sanderson Farms have said.

Chicken prices in the meat case are up about 10 percent from a year ago, much less than the sharp increase in wholesale chicken prices.

"Eventually I think they will have to pass on some of the (wholesale) prices," Roenigk said. "It appears that there are still retailers that are giving consumers an awfully good bargain on chicken."

USDA price data for May showed boneless breasts averaged $3.429 per lb in stores, versus beef at about $5.24 per lb. A year earlier, breasts averaged $3.123.

(Additional reporting by Michael Hirtzer in Chicago and Adriana Barrera Espinosa in Mexico; Editing by David Gregorio)

http://www.globalpost.com/dispatch/news/thomson-reuters/130620/us-chicken-sector-boosted-fast-food-items-costly-beef