Situation and Outlook of the US
Chicken industry
Presented to :
Southern Region Agricultural
Outlook Conference
Presented by :
Hugues Rinfret
Senior Industry Analyst
SunTrust Bank
September 25, 2000
1
Outline
• Introduction
• Demand Conditions
– Foreign markets (exports)
– US situation
• Supply Conditions
– Breeding inventories
– Prices
– Industry Structure
– Feed costs
– Environmental issues
2
Fast Export Growth Eluding the Industry?
• Slower export flow caused
re-focus on domestic market
– Export ratio plateau
– Foreign incomes rising faster
– Low but rising chicken demand
in foreign markets
• Focus on new products
year-over-year % change
• But huge potential remains
Chicken Production Relative to Exports
50
20%
45
18%
40
16%
35
14%
30
US demand - left axis
exports - left axis
export-to-production ratio
25
12%
10%
20
8%
15
6%
10
4%
5
2%
0
0%
1987
3
1989
1991
1993
1995
1997
1999
2001
Diversification of Exports Occurring Slowly
US Chicken Exports by Destination
• Sales to the FSU are
bouncing back
11%
1,500,000
53%
82%
1,000,000
500,000
1%
16%
25%
67%
1998/99
1999/00
% change
Russia, Latvia 1,042,493
1,706,677
64%
Hong Kong
1,182,518
1,307,536
11%
Other
2,070,766
2,325,816
12%
4
er
tv
ia
Total Chicken Exports - pounds
O
th
R
La
us
si
a
a
ad
C
an
re
ng
ap
o
Si
H
on
g
Ko
ng
-
M
ex
ic
o
• Need for new markets
2,000,000
Ja
pa
n
– Direct exports to Mainland
China still a novelty
27%
2,500,000
pounds
• Hong Kong is No.2 market
and still gaining
July 1999 to June 2000
Export Market Assessment
• Russia:
US Chicken Exports
pounds per month
450,000
– Political stability to support export demand
FSU
400,000
Other
350,000
– But at risk when Russia gets its act together
300,000
– With uniform tariffs, indirect exports de-emphasized
200,000
ruble
devaluation
250,000
150,000
100,000
• Hong Kong:
50,000
M
Ja
n98
ar
-9
8
M
ay
-9
8
Ju
l-9
8
Se
p98
N
ov
-9
8
Ja
n99
M
ar
-9
9
M
ay
-9
9
Ju
l-9
9
Se
p99
N
ov
-9
9
Ja
n00
M
ar
-0
0
M
ay
-0
0
– Strong economic comeback from the 1997crisis
– But re-exporting to China is booming - more with WTO
– Self-sufficiency in China is a dream
40
Cents/lb.
• Mexico:
Chicken Leg Quarters (4/10)
35
– Solid economy, offers greatest short-term potential
30
25
• Canada:
20
15
– Profitable but mature
19 9 9
10
Jan
5
Jan F eb M ar A p r M ay Jun
Jul
2000
A ug Sep Oct N o v D ec
US Demand Dip but Rebound Expected
• Red meats gained in ‘98 & ‘99
– Strong disposable incomes
– Food service gained ground
– Diminishing health concerns
• Turning Point in 2000?
• Chicken comes back in 2001?
Changes in Capita Meat Consumption
% change over previous year
10
beef
pork
chicken
8
6
4
2
0
1998
-2
-4
– Poultry relatively inexpensive
– Potential dip in consumer confidence
– New chicken products to the rescue?
6
1999
2000
2001
US Supply - Breeding Inventories on the
Right Track
• Pullet Chicks placed dropped 11%
in July
– Positive but delayed impact
on chicken production
– Favorable impact on prices
2000
Pullet Chicks Placed
(in 000s)
8000
19 9 9
19 9 8
7500
7000
6500
• Issues:
6000
Jan
Fe b
Mar
– Must contain production for several
months in a row
– Fragmented industry supports value
transfer to consumers
7
A pr
May
J un
J ul
A ug
Sep
Oc t
N ov
Dec
Chicken Prices on the Rise but...
• Breast meat posted a strong
30% gain since July
2 50
Cents/lb.
235
Chicken Breast (Boneless/Skinless)
220
205
19 0
– Encouraging but careful:
• Heat wave is a factor
• Consumers’ buying habits do not
change overnight
175
16 0
14 5
13 0
115
Jan
• A look at Tyson stock price
provides a glance at current
investors’ perception
– Need to keep supply growth below
trend
– Need successful new products
8
19 9 9
Jan F eb M ar A p r M ay Jun
Jul
A ug Sep
2000
Oct N o v D ec
Industry Structure Favorable to Consolidation
• Concentration ratio relatively low in chicken
– CR-4 is 0.49 relative to 0.70 in beef and 0.57 in pork
• Factors keeping consolidation at bay:
Market Share of Top-Four Processors
– Historically: Fast demand growth
80
60
– Now: record low feed costs
% 40
• Outlook:
20
0
– Pressure to consolidate set to increase
beef
pork
• Slower market growth will require focus on product innovation
• Market for brands is limited
• Feed costs will eventually rebound
• Consolidation up the value chain (e.g., retailers)
9
chicken
Steadily Low Feed Costs Behind Meat Glut
• Grain prices remain lowest in recent history
– Huge inventories keep corn well below $2.00/cwt
– Moderate export demand
• But careful, low costs...
– Encourage chicken production
– Limit current incentives for
consolidation
• Expect flat costs in 2001
2 .75
$US/Bu.
Corn (Central Illinois)
2 .5
2 .2 5
2
1.75
1.5
1.2 5
Jan
19 9 9
Jan F eb M ar A p r M ay Jun
– Large inventories downplay weather risk on grain
prices in 2001
10
Jul
A ug Sep
2000
Oct
N o v D ec
Need to Address Environmental Issues
• Non-point source pollution status:
– Building pressure to hold everyone accountable
• State environmental policy taking the lead
– EPA limited resources
– Grass-root movement supporting States’ initiative
– Ability to create uniform standards later
• Other livestock sectors facing similar pressure
– Chicken not at a competitive disadvantage
11
Conclusion - 2001 Outlook
• Surprising fast recovery in several export markets but
need diversification to reduce risk
• New product development to capture the benefit of
strong economics
• Record low feed costs again in 2001 is good, but put
production containment at risk
• Environmental issues addressed early unlikely to rattle
the industry
12