Output woes hand chicken sector 'robust prospects'

Pilgrim's Pride highlighted "robust prospects" for US chicken producers as the poultry group unveiled an 80% jump in earnings, lifted by a $143m windfall from lower grain prices.

The group, controlled by Brazilian meat giant JBS, said that US chicken industry margins were being underpinned by a limited rise in production expectations, at a time when demand is being supported by strong prices of rival proteins, and by expectation of record exports this year.

Although the number of eggs set in incubators is running 1.5% higher than a year ago, on a six-week average basis, actual chick placements are, at roughly 165m a week, in line with those a year ago, and below the five-year average.

The difference reflects "low levels" of hatchability, a factor some have attributed to producers build flocks by hanging on to older, and less productive, laying hens.

"All gains in total hatching layers are being offset by a corresponding decline in egg production," Pilgrim's Pride said.

'Disease issues?'

The dynamic has been reflected in a minimal increase in broiler meat production, a factor which prompted US Department of Agriculture officials last month to cut by 200m pounds, to 38.1bn pounds, its forecast for domestic output this year.

A pattern of "little-to-no growth in the number of birds being slaughtered is expected to continue on into the second quarter and possibly longer", the USDA said, noting that this output stagnation had been reflected in a "radically changed" situation regarding chicken stocks.

Chicken in cold storage in the US as of April 1 was, at 588m pounds, down 6.4% year on year and 13% month on month, "of the largest one-month declines" on record, and "the second lowest monthly cold storage level since 2003", Pilgrim's Pride said.

Other factors believed to have contributed to the slowdown include the cold US winter, which stems animal weight gains, with Paragon Economics and Steiner Consulting noting, unconfirmed, speculation of "disease issues".

'Robust prospects'

Whatever, the dynamics have been reflected in a sharp pick-up in chicken meat prices since February.

"Breast meat and tender prices continue to rally and have pushed the cutout [wholesale price] back to the 2013 levels after beginning the year 25% below last year," Pilgrim's Pride said.

"The current environment for the chicken industry indicates robust prospects for 2014."

And the group added that it was "well positioned to reap the benefits", after annual cost cuts it said had reached $642m since 2010, in the early days after JBS bought the company from bankruptcy, with a further  $220m in savings expected this year.

Profits soar

The comments came as the group reported a earnings of $98.1m for the January-to-March quarter, up from $54.2m a year before, on revenues down 0.9% at $2.02bn.

The rise in earnings reflected largely a drop in grain prices, which cut the company's feed bill by $143.3m.

The earnings equated to $0.38 per share, marginally below the $0.39-per-share result Wall Street had expected.

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