Sysco profit down on higher meat, poultry prices

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  Sysco Corp. reported a 2 percent drop in quarterly profit.

  From WATTAgNet:
  Sysco Corp., America’s largest food distributor, reported a 2 percent fall in quarterly profit. It said its profits were hurt by a rise in meat and poultry prices, a strong dollar and higher expenses.
  Sysco’s net income was $177 million, or 30 cents per share, down from $180.9 million a year earlier.
  The company’s sales rose 4.2 percent to $11.75 billion.
  Ted Rueger, president of Eastern Poultry Distributors, recently said in an interview with WATT PoultryUSA that the rising cost of proteins is the biggest challenge facing poultry distributors.
  “It takes more capital for poultry distributors to run their businesses today than a year ago,” he said in fall 2014.
  “A load of boneless chicken for which a distributor might have paid $50,000 a year ago more recently cost around $80,000.
  “Distributors are facing the same kind of cost increases in their beef and pork purchases. Meat proteins are at all-time highs, and as a result 30 percent to 40 percent more capital might be required today to run their businesses than a year ago,” he said.

Hormel CEO: Avian influenza will impact company earnings

Highly pathogenic avian influenza (HPAI) is creating problems with a reduced supply of turkeys, and will have a subsequent negative impact on plant operations forJennie-O Turkey Store, the company stated.
Jeffrey M. Ettinger, chairman of the board, president and CEO ofHormel Foods, the parent company of Jennie-O Turkey Store, cautioned investors that the avian influenza outbreaks will likely put pressure on the company’s earnings during the second half of fiscal year 2015.
H5N2 avian influenza has been detected at multiple turkey farms that supply Jennie-O Turkey Store, resulting in the loss of affected flocks and temporary quarantine of farms in the area until a full cleaning process is completed. Jennie-O Turkey Store is managing the occurrences in full cooperation with the USDA Animal and Plant Health Inspection Service (APHIS) and state agency officials in Minnesota and Wisconsin. The company is also collaborating closely with industry associations and other poultry companies in the region to ensure food safety and employee safety.
“We are experiencing significant challenges in our turkey supply chain due to the recent HPAI outbreaks in Minnesota and Wisconsin,” stated Ettinger. “While Jennie-O Turkey Store has delivered strong financial performance so far in the first half, tight meat supplies and operational challenges will pressure earnings in the back half of our fiscal year. We are currently maintaining our fiscal 2015 non-GAAP1 adjusted earnings guidance range ... with the assumption that farm outbreak occurrences will decline as the weather improves, but expect turkey supply challenges to push our full year earnings toward the lower end of this range.”
Ettinger added that he did expect avian influenza’s financial impact on the multi-protein company to partially offset by favorable hog prices benefitting Hormel’s Refrigerated Foods segment and portions of the Grocery Products segment.” 
Hormel Foods will reveal more details on avian influenza’s financial impact on the company on May 20, when the company releases its second quarter financial report.

Economist forecasts record chicken, turkey prices in 2014

The first good crop year after a drought is usually when livestock and poultry producers recoup the losses they incurred because of high grain prices brought on by the drought. Eventually, cattle herds are reduced and poultry and swine producers also cut back production until meat prices rise to levels that are profitable, even with the high feed costs. Then, after a good harvest, grain prices fall and meat and poultry prices remain at elevated levels until herds and flocks are increased to take advantage of the favorable prices and costs. The lag time from when grain prices fall and when production ramps up is generally the most profitable time to be in the meat and poultry business. 
Lower costs and higher prices
Speaking at WATTAgNet.com’s 2014 Grain and Meat Outlook webinar, Dr. Thomas Elam, economist and president, FarmEcon LLC, said that the US cattle herd will take years to recover and that Porcine Epidemic Diarrhea virus (PEDV) is limiting US swine producers’ ability to increase production, and these two facts provide a unique opportunity for poultry producers. Elam said that he expects beef, pork, chicken and turkey prices to all set record highs in 2014.
In spite of the desire of chicken and turkey companies to ramp up production to take advantage of this window of lower grain prices and high meat prices, Elam said that he doesn’t expect to see broiler and turkey production in the US to increase significantly until the third and fourth quarters of 2014, respectively.
Elam said that the cutbacks made by US broiler and turkey companies in response to tough economic times over the past few years had resulted in a decrease in the size of the grandparent and parent flocks and that this is delaying the industries’ ability to increase chick and poult production. He also said that US exports of turkey and chicken hatching eggs have increased over the last year, further slowing industry efforts to ramp up production.
Will grain prices fall further?  
The record corn harvest in the US was large enough to result in a rapid drop in corn prices, unfortunately, the same can’t be said about soybean prices. Tim Brusnahan, vp of consulting and principle, Richard A. Brock & Associates, Inc, said not to expect any lower prices for soybean meal until July or August. With the expected increase in soybean acreage in the US this year, he expects to see a drop in soybean prices as this year’s crop is harvested.
Brusnahan forecast a farm price for soybeans of $9.00-10.50 per bushel in the 2014-2015 crop year, down from an expected $12.25-13.25 range in the current crop year (2013-2014). If the US experiences an average yield for corn this season (2014-2015 crop year) of 163 bushels per acre, Brusnahan said that the farm price for corn will be in the $3.85-4.60 per bushel range, which would be slightly lower than the forecast range of $4.20-4.70 for the 2013-2014 crop year. He said that there is a good chance that we may not see the low price for corn for the 2013-2014 crop year until July or August of 2014.

Sanderson suspects link between lower dark meat prices, government shutdown

Dark meat chicken prices dropped on average by a penny a day during the week of October 14, and Sanderson Farms CEO Joe Sanderson Jr. suspects the recent battles in Congress and the government shutdown may have something to do with it. Sanderson made those remarks on October 18 during the Sanderson Farms 2013 Investor Day.
"I don't know why dark meat has declined; there seems to be plenty of product in inventory across the globe," said Sanderson. "Domestically, we think maybe this government shutdown has tamped down demand a bit."
Sanderson said during this time of year, it's very unusual for retail clients to be low on dark meat. Ordinarily, Sanderson Farms is sold out on dark meat and wings almost every week, he said, but during the week when prices declined, there has been "a little bit of dark meat in excess."
A similar scenario occurred in August 2011, when the federal government was fighting about the debt ceiling increase. Sanderson said officials from his company believe major economic disputes in Washington, like those two, can impact prices. 

Worst pressure on chicken wing prices behind us, Buffalo Wild Wings CEO says

As cold storage inventories of chicken wings increased in late 2012 and earlier parts of 2013, buyers saw a lot of pressure on wing prices. However, the worst times for chicken wing prices may be over,
Buffalo Wild Wings CEO Sally Smith said during the Wells Fargo Securities 2013 Retail and Restaurants Summit on October 1. McDonald’s in September initiated a nationwide launch of
Mighty Wings, a chicken wing product. In anticipation of the national campaign, the quick service restaurant chain began to keep its wings in cold storage, Smith said, creating a shorter supply of available chicken wings that put pressure on the prices.“I think we saw a lot of that cost pressure in 2012, with sustained high wing prices -- the highest we’ve ever seen,” said Smith. “McDonald’s has owned the whole bird. They used to sell their wings on the market, and they started saving their wings. Those wings weren’t available, and I think that pushed the price up.”
That price pressure continued into the first quarter of 2013, Smith added. However, Smith said the market has absorbed that pressure.
With strong pullet placements and eggs set in past month, the situation looks favorable for chicken supplies and for the Buffalo Wild Wings chain, Smith said.

Lower chicken wing prices push up Buffalo Wild Wings’ earnings

Lower chicken wing prices played a key factor to an increase in earnings, sales and total revenues for Buffalo Wild Wings. The financial results for the restaurant chain's second quarter were announced on July 30.
For the quarter ending June 30, net earnings for Buffalo Wild Wings increased by 41 percent, leaping to $16.5 million for the second quarter, compared to the $11.7 million net earnings for the second quarter of 2012. Total revenues for Buffalo Wild Wings increased 28 percent to $305 million.
Sally Smith, president and chief executive officer of Buffalo Wild Wings, said their strong quarter was not only aided by lower chicken wing prices, but also by the opening of more stores. The number of company-owned restaurants increased by 23 percent, and company-owned restaurants' sales climbed 29 percent. Twenty franchised restaurants were also added since the second quarter of 2012. 

Retail prices climbing faster for poultry than for other proteins

Retail poultry prices have increased faster than other proteins over the past year, having climbed 4.2 percent from their April 2012 levels. Chicken prices moved up 4.4 percent, while other poultry prices -- including turkey -- increased 3.4 percent. Poultry prices in April increased 0.7 percent from the previous month.
"Consumers over the last six months or so, and maybe a little longer, have been beginning to switch from the perennially expensive beef and even pork, on to poultry," said USDA economist Ricky Volpe said during a recent USDA broadcast, indicating that higher demand translates into higher prices.
In contrast, beef prices were down 0.5 percent in April and are 1.8 percent above last April, with steak prices down 0.2 percent and ground beef prices up 2.7 percent, according to the USDA's Food Price Outlook, released on May 28. Pork prices decreased 0.6 percent in April and are 1.6 percent below last April's level. A decline in exports and increased hog production has resulted in retail pork prices for the first 4 months of 2013 that are well below those of 2012. Overall, the drought has not had a substantial effect on pork prices.
Fish and seafood prices were up 3 percent from March to April and are 2.3 percent above the April 2012 level.
Egg prices rose 1 percent in April and are now 3.1 percent above the April 2012 level. Egg prices are expected to fully reflect the impact of higher feed corn prices sooner than many other food products but are also subject to strong seasonal swings in pricing. 

Consumer poultry prices experience temporary drop

The consumer price for poultry meats dropped slightly from January to February, in direct contrast to pork and beef, which both edged up.
The estimated consumer price for poultry products — including broiler chicken and turkey — backed off by 0.2 percent, while the price of pork saw a 0.8 percent increase, and beef and veal saw a 0.4 percent increase during February, according to the U.S. Department of Agriculture's Food Price Outlook released on March 25.
However, it was the price of fish and seafood that saw the biggest decline in consumer price for the month, dropping by 1.2 percent. Since seafood is less reliant on crop-based feeds, its prices have not been impacted as harshly by the past year's drought.
"We're keeping our eyes closest on all prices for foods that are animal based, so of course meats, your beef and pork and poultry, but also eggs and dairy products are going to be affected," said USDA economist Ricky Volpe during an agency broadcast. "These are the foods that are based on corn-based animal feeds, and that's where we expect to see the biggest impacts."
Eggs jumped in price by 1.1 percent, while dairy products dropped by 0.4 percent.
Year-over-year estimates
When compared to the price estimates from February 2012, only pork and products categorized as "other meats" saw a drop. Pork was down 1.5 percent, while other meats dropped by 0.2 percent.
Eggs and poultry saw the highest year-over-year increase, jumping by 5.8 and 5 percent, respectively. Beef prices went up by 3.4 percent, while fish and seafood went up by 0.5 percent.
Forecast for 2013 and beyond
While many meat prices have jumped as feed prices have risen among tight supplies, Volpe said he still anticipates "most of the impact of the drought is yet to come."
Nearly all proteins are forecast to increase by 3 to 4 percent for 2013, including poultry, pork, beef and veal, and other meats. Dairy products, meanwhile, are projected to increase from 3.5 to 4.5 percent, but fish and seafood are only forecast to jump 2.5 to 3.5 percent.
Those projections are consistent with the ones released in last month's Food Price report, and are higher than the historical average, according to Volpe.
Contributing to the price pressures are low long-term inflation, and low meat inventories relative to demand.

Poultry price increases inevitable in wake of global grain shortage

The current world grain shortage caused by the prolonged drought in the U.S., coupled with excessive rains in Northern Europe, is having a significant impact on poultry meat production worldwide, according to the International Poultry Council. High prices of feed grains in particular are pushing up the cost of producing commercial poultry, and poultry price increases are inevitable, says the council.
Companies will be forced to pass those increases on to consumers, and couple them with cuts in production. To mitigate some of this, governments should take whatever measures are available to prevent any further increases in grain prices. "Poultry meat has historically been the world’s cheapest large-scale source of animal protein, and has played a central role in providing consumers in poorer nations with access to protein," said the council. "Continued high grain prices threaten food security, especially in low-income countries."
The council also said that governmental policies that subsidize or encourage the production of renewable fuels from grains and cereals should be revised in order to avoid the risk of food shortages.

US consumers paid more for poultry, eggs in 2011

According to the Bureau of Labor Statistics' Consumer Price Index Summary, released December 16, U.S. consumers paid more for food, including poultry meat and eggs, overall in 2011. The index for “food at home” rose 5.9% over the past 12 months, with “all six major grocery store food groups up at least 4.4%.” The six major grocery store food groups are: cereal and bakery; meat, poultry, fish and eggs; dairy and related food items; fruits and vegetables; non-alcoholic beverages; and other food at home. The index for “food away from home,” or food purchased from fast-food or full-service restaurants, rose 2.9% in 2011, unadjusted for the seasons, according to the BLS. Ricky Volte, research economist with the U.S. Department of Agriculture, said that weak economic growth has driven more consumers to purchase food at the grocery store rather than going out to eat, increasing demand and, subsequently, prices for “food at home.” 

Georgia poultry producers see high costs, low profits

Georgia poultry producers are considering cuts in production to help offset continued increases in costs coupled with low profits, according to industry experts.
Feed corn prices have doubled in the last year, from $4 a bushel to $8 a bushel, according to Georgia poultry executives, and prices for fuel have also continued to rise. The price for chicken, however, has remained low. "The current financial picture for poultry is as serious as any the industry has faced in recent memory," said Mike Giles, president of the Georgia Poultry Federation. The solution, according to the industry, may be to cut the supply, causing poultry prices to rise and restoring some of the lost profits.
"Production has got to go down," said Mike Lacy, head of the poultry science department at the University of Georgia. "They can't continue to operate at a loss, and right now their costs of production are significantly greater than what they can get for the product at the grocery store."

US Supreme Court upholds $14.5 million payout for Oklahoma poultry farmers

The U.S. Supreme Court will not hear an appeal by Arkansas-based O.K. Foods Inc., leaving in place an order that the company must pay $14.5 million to 300 Oklahoma poultry farmers, according to reports.
The poultry farmers, who had contracts to supply O.K. Foods with chickens, claimed that the contracts were anti-competitive and filed a lawsuit in 2002. According to the farmers, O.K. Foods used its power as the only poultry buyer in the area to manipulate lower chicken prices. O.K. Foods' defense said that the farmers failed to prove their claims.
In 2008, a federal jury in the Eastern District of Oklahoma ruled in favor of the farmers and awarded them $21.1 million. The amount was then lowered to $14.5 million by the judge on the case.
A three-judge panel in the 10th Circuit Court of Appeals in Denver, Co., upheld the award in October 2010. The next step will be to consider a formula for distributing the judgment to the growers and to consider the amount of attorney fees.

US poultry prices slated to rise 2% to 3% in 2011 due to increased corn costs

The U.S. Department of Agriculture is predicting a 2% to 3% poultry price increase in 2011, which will bring the national average price for boneless chicken breast to $3.424 per pound (from $3.324 per pound).
U.S. corn supplies are at their lowest levels in 15 years, due to an increase in demand coupled with a decline in reserves as more of the harvest goes to the ethanol industry. This situation is having an even greater impact on pork prices, which are expected to increase 3.5% to 4.5%. "All of the meat commodities that we put in the center of the plate are going to have some price (increases)," said Tom Jackson, president and CEO of the Ohio Grocers Association, since chicken, hogs and cattle are all fed corn.
According to grocers, poultry products will be the first to reflect the price increases. "Pork will follow, then beef," said Food-4-Less owner Bucky Lee, who has been in the grocery business for 44 years. "It just takes them longer to get fed and into the food supply."

Contract growers demand higher per-pound pay

The Contract Poultry Growers Association of the Virginias, which includes poultry and egg producers in West Virginia and Virginia, is calling on consumers to demand that poultry processors pay higher prices to farmers.
In a statement, the association argues for a $0.02 per pound increase on the price that processors pay to farmers, up from an average of $0.05, according to the association. The statement says that the average per-pound price farmers were paid in 1985 was $0.0485 in non-adjusted dollars and that, adjusted for inflation, real pay has decreased by more than half.

Group seeks to curb hog, poultry farm growth

According to reports, the Campaign for Family Farms and the Environment (CFFE) is asking the USDA, in a letter to Agriculture Secretary Vilsack, to halt direct and guaranteed loans to new or expanding hog and poultry farms. The letter contained 25,000 signatures and is in response to what the group views as overproduction.
Farmer and Missouri Rural Crisis Center member, Rhonda Perry, said on radio station KBIA, "We've got 547 million pounds of pork in cold storage, which is 25% higher than the five-year average, and I believe it's about 8% above last year's numbers."Presently the hog and poultry industries are experiencing historically low prices and oversupply conditions.
A similar loan hold was done in 1999 in response to the hog industry price crisis of that time.

Tyson’s chicken operations profitable since late February

Tyson Foods Inc. reported that its chicken segment lost $46 million in the second quarter of fiscal year 2009, which ended March 28, 2009. There was a distinct positive note for the company’s broiler operations, however.
"Our chicken segment has been profitable since the end of February, and I am pleased with the consistent progress we are making," said Leland Tollett, interim president and CEO of Tyson Foods. "We have improved our operational efficiencies, our product mix, and we are benefiting from lower grain costs and more favorable chicken prices."
Donnie Smith, senior group vice president of poultry and prepared foods, said that if not for losses on grain hedging in the second quarter, Tyson’s chicken operation would have been profitable. Smith attributed $63 million in additional costs to grain hedging losses for the chicken operations in the second quarter.
Tyson reported that it was able to reduce its finished goods inventory by 150 million pounds in the second quarter, and most of this reduction came in chicken products. Earlier this year, Tyson reported that it reduced chick placements by 5% in December 2008 to help the company reduce its frozen chicken inventory. In a conference call held in February the company said that these placement cuts would be maintained until inventories were reduced to normal levels and customer demand warranted an increase in volume. During the May 4 conference call, the company said that it had not increased chick placements, even though finished goods inventories have been reduced to what were described as “normal” levels.
“We will add back when our market demands it and not before,” Tollett said. “We will not put chickens down on the come.”
The company as a whole lost $104 million in the second quarter. Tyson officials expressed some guarded optimism that operating margins for all of its businesses will continue to improve in the third and fourth quarters of this fiscal year. When asked if a return to normal profit margins in the chicken business would prompt Tyson to increase chick placements back to its pre-placement cut levels, Tollett said that the company would not add volume unless they think that they could maintain these profit margins unequivocally at the increased volume levels.

Flock study results released

Don Bell of the University of California, Riverside, has circulated Part 13 B of the National Flock Performance Study.
This report considered income over feed costs and pullet depreciation for flocks with a first-cycle length ranging from 47 to 91 weeks as the extremes.
Data was collected from 11 companies participating in the National Flock Performance Study. Seven of the 11 companies applied either non-molt or single-molt programs. The contribution margin was calculated from the difference between revenue, using standardized prices for grades, minus feed cost and pullet depreciation. This value was multiplied by 52 weeks.
The contribution margin ranged from $3.93 per hen housed to $5.37 per hen housed. The differences among respondents reflected length of the laying cycle, strain selected and management. Lower returns were associated with shorter flock aged at either depletion or onset of molt, and the higher contribution margins were associated with an extended first cycle, usually with flock depletion at approximately 80 weeks of age. The correlation factor between contribution margin and age was 0.43.
Each week of extending the first cycle from 50-90 weeks of age added 5.6 cents to the 52-week contribution margin.

Wholesale chicken wing prices decrease

Chicken wings decreased to $1.50-$1.65 per pound, although U.S. poultry wholesale prices were still up 90% from a year ago, according to a market update from www.meatinternational.com.
Breast meat decreased to $1.20-$1.25 per pound, and U.S. retail prices for legs/thighs were $1.19 per pound.