Selling chicken to importers like Mexico and Angola is getting harder than ever for U.S. producers, and the latest outbreak of bird flu in some Midwest flocks isn’t the only reason.
Even before importers began banning purchases from states with bird-flu cases, a strong dollar was boosting the cost of U.S. exports that account for 17 percent of the domestic output. Plunging oil prices also cut into demand by reducing revenue for countries that rely on the commodity for income.
At a time when high domestic prices and cheaper feed have bolstered profit for companies including Tyson Foods Inc., U.S. poultry output is heading for a record high in 2015 and inventories are growing. Compounding the surplus, chicken shipments to foreign buyers will drop to an eight-year low, the government forecasts. The U.S. produced $44 billion of poultry in 2013 and is the world’s top shipper of chicken after Brazil.
“We’re having a tough time seeing where the growth is going to come from,” said Altin Kalo, an analyst at Steiner Consulting Group in Manchester, New Hampshire. “With the avian influenza, it just makes it a little bit more difficult. Our view is fairly bearish.”
Shipments of chicken to overseas buyers will drop 8.5 percent to 6.68 billion pounds (3.03 million metric tons), down from an earlier forecast of 7.1 billion pounds, and turkey exports will plunge 10 percent to a four-year low, the U.S. Department of Agriculture estimated April 9.
More than 90 percent of U.S. chicken exports are dark meat, like legs and thighs, according to the USA Poultry & Egg Export Council. Leg quarters, one of the most commonly exported cuts, dropped to 34 cents a pound in the week of April 20, down 29 percent from the same time last year, according to Urner Barry, the Toms River, New Jersey-based commodity researcher.
Bird flu isn’t helping. Since the start of the year, highly pathogenic avian influenza has been found in more than 70 commercial poultry flocks, mostly in Minnesota, Iowa and Wisconsin. While almost all the cases were in turkey or egg- laying operations rather than chicken producers, importers including China and Mexico, the top buyer, have imposed bans.
That’s accelerating a shift to other suppliers, including Brazil, which already has “a major competitive advantage” after the dollar surged to an 11-year high against the real, said Tom Elam, president of FarmEcon in Carmel, Indiana, an agricultural industry consulting firm. The dollar climbed 16 percent against a basket of 10 major currencies in the past year.
Shipments to Angola, the second-largest buyer of U.S. broiler meat last year, plunged to 5.76 million pounds in February from 45.9 million a year earlier, USDA data show. Angola is the second-largest oil producer in Africa, and the drop in prices has eroded its revenue.
As demand drops from overseas, domestic chicken production is forecast to increase 3.8 percent this year to 39.6 billion pounds the USDA estimates. Total poultry available per person will jump to 105.9 pounds, the highest in government records going back to 1970.
The surplus may not last long. While exports are dropping, U.S. demand remains strong. Consumers are buying more from grocery stores, and restaurants including McDonald’s Corp. are promoting more chicken on their menus as a cheaper alternative to beef. Retail boneless chicken breasts averaged $3.522 a pound in March, compared with ground beef at $4.20, Bureau of Labor Statistics data show.
“Chicken continues to be viewed favorably on all fronts from a demand standpoint,” Russ Whitman, vice president of the poultry division at Urner Barry, said in an April 24 telephone interview.
Cheap dark meat may help spur demand for U.S. supply, said Brett Stuart, a founding partner of Global AgriTrends in Denver. Leg quarters are “probably one of the cheapest sources of protein on the planet,” he said. “There are better days ahead.”
For now, foreign buyers are going elsewhere. In January and February, even before most of the bird flu cases began appearing last month, the U.S. exported 1.02 billion pounds of broiler meat, down 15 percent from the same months last year, the latest USDA data show. That’s boosting inventories of chicken meat, with supplies in cold storage totaling 751.9 million pounds on March 31, up 27 percent from a year earlier, government data show.
“We expect calendar year 2015 to be a down year for exports” by the U.S. chicken industry, with less volume and lower prices, Mike Cockrell, the chief financial officer for Laurel, Mississippi-based chicken processor Sanderson Farms Inc., said in a telephone interview on April 27.
Springdale, Arkansas-based Tyson, the largest U.S. chicken processor, declined to comment.
Delays at West Coast ports also plagued meat and poultry shipments at the start of the year. Russia, a major buyer of U.S. chicken last year, is continuing bans against American and European food, which began in August as part of political disputes over incursions in Ukraine.
The outbreak of highly pathogenic avian influenza is just the latest blow for sales. The USDA says birds in all affected flocks are destroyed and their meat doesn’t enter the food chain. The virus is not a food-safety concern, the agency says.
“The export side is weak,” said Joe Grendys, chief executive officer of Park Ridge, Illinois-based Koch Foods Inc., the fifth-largest U.S. chicken processor. “Our concern is the back half of the bird. A strong dollar and cheap oil do not support the back of the chicken, and bird flu adds to the potential for pressure on exports.”