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Article: COVID-19 bringing shifts in poultry sector
08 April 2020
Read below an article taken from our commodities platform
dated 07/04/20.
Highlights
Whole bird prices retreat 17 US cents per pound - the largest
decline on record as food service movement implodes.
Both boneless/skinless breast meat and wings see swift price
declines as sweeping food service support declines cause sellers to
creatively seek clearance alternatives.
Broiler Overview & Comments
As consumers have adopted stay-in-place measures over the last
two weeks, the market place has varied widely, depending on
procurement activity. Food service support has eroded significantly
as store traffic has been decimated. Nearby, supply lines will be
tested as additional broiler meat production shifts to accommodate
retail-orientated product. As more integrators revise targeted
liveweights to focus on retail demand, there is a growing notion of
surplus reoccurring over the next several weeks and months. Wings
and dark meat have led the cutout valuation higher over the last 12
months. IEG Vantage anticipated that the cutout would be less
reliant on wings for 2020, but the price erosion as a result of
elevated production now has been further exacerbated on weak demand
as many spectator events associated with social gatherings and wing
consumption either have been canceled or delayed due to social
distancing measures. During March, IEG Vantage's weighted broiler
cutout valuation averaged 77.4 cents per pound, which was down 10
percent from a year earlier. It is not surprising that the March
average was lower than a year earlier given the externalities
facing the industry. Neither was it surprising that the weighted
average was down 1.3 percent from the previous month. But it is
worth noting that it was the first time since 2015 when prices
declined overall from February to March. IEG Vantage anticipates
broiler integrator margins were slightly above breakeven during
March, overall. While the current broiler meat price outlook and
nearby corn and soybean meal prices suggest an opportunity for
margins to remain above breakeven for 2020 on average, there
remains much consternation to the effect that declining food
service demand can continue to pressure markets beyond the scope of
the fundamental price forecast. With integrators not showing any
reluctance to advance supplies through mid-year, risk is continuing
to develop for margin compression to be more severe than IEG
Vantage's previous outlook (shown in the following graphic) as a
result of surplus availability during the second and third
quarters.
Turkey Comments
The Impact of COVID-19 stay-in-place measures on the turkey
industry is most notable in the further processed segment where
significant declines in protein usage due to reduced
food-away-from-home consumption has occurred for in-store dining
locations. The further processed segment has represented more of a
year-round revenue center for turkey producers in an otherwise
seasonal center-of-plate offering. Declining use further
exacerbates price pressure in segments that already were on their
heels through much of the first quarter. Nearby, there remains
considerable risk when assessing the outlook. Much like the more
expensive beef cuts, turkey breast meat typically destined for the
premium deli counter is expected to encounter significant demand
shock as consumers are less likely to visit local delicatessens or
their full-service deli counter at retail (even if they are open).
Conversely, tub, or pouch lunch meat is expected to see a brief
period of support, which could remain prolonged as consumers search
for economical options to feed the entire family during
stay-at-home orders. It is yet to be seen whether the result of a
rebirth of demand at wall deli meat section will prove supportive
overall to the cutout valuation. In the most recent USDA Cold
Storage report, turkey in freezers at the end of February totaled
341 million pounds, which was down 25 percent from a year earlier
and down 11 percent when compared with the average for February
during the most recent five years, yet up 13 percent from January's
end. The disparity from a year earlier can be owed to whole bird
supplies as nearly all other categories showed growth during
February. Whole birds reported at year's end during 2019 were at a
significant deficit when compared with a year earlier. Inventories
of whole birds rose at a dampened rate during January and February.
Alternatively, breast meat inventories grew by 11 percent during
February, despite being at a level still 17-percent below a year
earlier to end February. In addition, turkey meat categorized as
"other" rose 17 percent during February. With fresh market prices
dropping to the levels they have been, current conditions easily
could be seen by some market participants as an opportunity for
forward purchasing, which is expected to result in further building
of stocks nearby.