he U.S. poultry industry started the year
2011 in a bad state; pessimism in the
industry was at its highest levels. Grain
prices were high, fuel costs were rapidly rising
and excessive supply was dampening prices.
All in all, there were few or no positives.
Although many of these negatives extended
into the second quarter, con;dence improved
as the industry adapted (as it always seems to
do). Now in the third quarter of 2011, con;dence has stabilized and outlooks for future
pro;ts are bright.
The WAT T PoultryUSA/Rennier Associates
Poultry Con;dence Index remained steady in
the third quarter of 2011. The Overall Index
now stands at 79.0 (1996 = 100), down slightly
from 84.4 the previous quarter. The Present
Situation Index dropped back to 74.2 from 91.1
(a one-quarter blip?). Finally, the Expectations
Index rose slightly to 82.1 from 79.7.
Poultry industry confidence stabilizes on
news of supply cuts
this quarter, continuing a steady climb since
the ;rst quarter. This is surprising given the
numerous comments received about the high
cost of grains – “Input costs are very high due
to grains” and “Grain prices will continue to
erode.” And there were predictions of a long
and sustained recession ahead – “A clear-cut
recession is looming” and “The economy is
headed for a deep recession.”
remain a thorn in the side
of the industry, news of
production cuts is cause for
for higher pro;ts are on the
‘Present situation’ still weak
Opportunities – more precisely, the lack
of new jobs and unemployment – were the
primary drivers behind the fall in the Present
Situation Index. These issues have received a lot
of press lately. As stated in the June edition of
the Consumer Con;dence Index, “Consumers’
appraisal of current business and employment
conditions was less favorable as concerns about
the labor market continue to weigh on consumers’ attitudes.”
The poultry industry is experiencing similar
apprehensions. As one PCI respondent sum-
marized, “Even though opportunities may be
available, the company is reluctant to replace
or add to the head count due to the current
On the positive side, pro;ts expectations
rose substantially, from 64.4 last quarter to 89.6
So what’s driving pro;t expectations given unrelenting grain prices?
Especially when respondents said
things like the following: “It can’t go
any lower” or “It can’t get any worse.”
Like many times before in many different commodity markets, when pro;ts
go down, producers will cut back to
align supply with demand. This has
started to occur.
In addition to confirmatory comments like, “I believe the industry has
taken real steps to limit supply,” recent
data points to a 6.6% decline in weekly
egg sets. This ;gure has accelerated in
recent weeks, a positive sign that the
industry is moving in the right direction. However, according to BB&T
Capital Markets analyst Heather Jones,
reductions in the range of 8% to 9%
are required to return the industry to
Greg Rennier, Ph.D., is president of Rennier
Associates, Inc., email greg@rennierassociates.
Top-Line Confidence Trends
Category Confidence Trends ( 5 indices)
Category Confidence Trends (Broiler/Turkey)
All the confidence measures dropped except for the outlook for future profits, which rose from 64.4 to 89.6.
The Overall Index now stands at 79 (1996=100), down
from 84.4 last quarter.
After hitting rock bottom in the ;rst
quarter of 2011, con;dence in the U.S.
poultry industry rebounded in the second quarter and remained steady in the
third quarter. Even though grain prices
Confidence fell in the broiler sector but rose marginally
in the turkey sector.