What’s driving poultry profits?

Poultry industry profitability is changing, and that change is being driven by an increase in the importance of live production efficiency brought about by higher feed costs. Profits are also more dependent than ever on revenues from byproducts like chicken feet (paws), livers and gizzards, according to Mike Donohue, vice president of Agri Stats.

Live production costs
The industry has “dealt with higher and higher live production costs over the last two and a half to three years. This has softened somewhat but they have had to realize that their live costs are now – especially on the feed and ingredient side – 50% to 60% more than three or four years ago,” Donohue told WATT PoultryUSA in a video interview at the USA Poultry & Egg Export Council annual meeting.
“As a result of that they have put more emphasis on live operations than they did in the first part of the last decade and are putting more efforts on feed conversion and efficiencies,” he said.

Markets squeeze
At the same time, the poultry industry is dealing with soft demand in foodservice markets at home and disruptions in trade in its two most important export markets – Russia and China. This has forced processors to depend more heavily on “other” profit centers in their businesses.

Drivers in industry profitability
Donohue said that during the first half of this decade the difference in being the best in profitability and being average in profitability was largely driven by sales prices and to a lesser extent by plant cost. In today’s market, however, a plant’s ability to harvest and sell byproducts like chicken feet, livers, gizzards and offal has become more significant to profitability.
Such “other profits” in the industry have climbed from a 15-year low of around 1.25 cents per pound in late 2002 to almost 3.5 cents in 2010, according to Agri Stats data presented by Donohue at the USAPEEC meeting.

Importance of paws
Chicken paws exported to China are an important part of the other revenue for many processors. As average prices for paws have risen from between 20 and 29 cents in 2003 to between 74 and 96 cents in 2010, the number of U.S. plants processing paws has risen. Agri Stats data shown by Donohue indicated the number had risen from somewhere around 75 to over 110 in this period.