Overall chicken industry profitability so far this year, when adjusted for the mix of products produced has been slightly better than 2016, which was not a good year and far below 2017’s. Hatchery output is expected to reflect this situation, with hatchings up 2% this quarter but then tailing to unchanged from last year’s during the summer quarter, and maybe even a slight decline for the last quarter of the year. Much depends on the path of corn and soybean meal prices in coming months, and higher costs for these production inputs will skew chicken production decisions to the downside.
Increases in U.S. chicken production will struggle to be absorbed overseas or on the domestic market without lower prices. U.S. consumption (retail weight) is expected to increase from 2017’s 63.7 pounds per person to only 64.0 pounds this year. Excess production will accumulate in cold storage. Inventories of chicken in cold storage at the start of the second quarter were up 15% compared to a year earlier and will be a factor limiting production expansion later in 2018.
Chicken processor gross margins were unseasonably weak during April and May as wholesale breast meat and wing prices struggled. Most important has been depressed prices for deboned products. Margins for lighter weight whole birds, such as rotisserie-style product have improved during the same interval and are at the highest levels in at least two years. The dichotomy in economic returns between the two markets should encourage some more production of smaller birds over the course of the next year or two, which would moderate the pace of total tonnage increases.
U.S. turkey production in 2018 is set to decline year-over-year by 1-2% as producers respond to negative economic conditions. Whole bird prices were well below a year ago throughout the first half of this year. Expectations are for those prices to improve as downward production adjustments tighten inventory.
Supported by low prices, turkey exports were active in the first quarter. The gain compared to 2017 was 15%, and was the largest for the quarter since 2014. Strength in the export market is expected to continue, and the annual forecast is for turkey exports to be up 7%. Mexico is the largest market, which of course could be problematic, especially if NAFTA stumbles.
Lackluster domestic consumption is the biggest challenge for the turkey industry. Domestic use was down 5% from a year earlier during 2018’s first quarter. There is little incentive to increase, or even maintain production at recent levels until there is some clear sign of an uptick in U.S. consumer demand.