Poultry demand takes flight as red meat prices spike

Posted by on May 25, 2014 in Sounds, Visuals, Words | 0 comments

By Jacob Passy

Thanksgiving is over six months away. But that’s not stopping American consumers from breaking out the turkey – and chicken and eggs, to boot.

More people are flocking to poultry to fulfill their protein needs as the prices of beef and pork hit all-time highs. This wave of customers is adding to the high tide of demand that the poultry industry has experienced for years now.

The demand for chicken increased 8 percent year-over-year in March, according to USDA data cited by Steve Meyer, president of Paragon Economics and author of the Daily Livestock Report. This figure is expected to grow in April, as chicken prices continued to drop despite continued increases in beef and pork. And as Meyer sees it, we have only just seen the tip of the iceberg when it comes to growing demand for poultry.

“We’re going to have very higher prices for beef and pork for the foreseeable future,” Meyer said. “With these alternatives going up I think you’re going to see chicken have more featuring and have some real opportunities in the marketplace.”

It’s hard to imagine the market for chicken being better than it is right now, though. Beef prices hit all-time highs in April. Round steaks now fetch $5.28 per pound, according to the Bureau of Labor Statistics, the highest reading since the early 90’s. Bacon and breakfast sausage products saw 6 percent increase from last year based on the latest data in the Consumer Price Index.

“The vast majority of consumers make their purchasing choices based on price, taste and convenience. And poultry really meets all three of those criteria,” said Hobey Bauhan, president of the Virginia Poultry Federation.

Biblical conditions can be blamed for the price increases facing our nation’s red-meat eaters. Droughts in the Midwest in 2010 and 2011 caused ranchers to trim the size of cattle herds to the lowest levels seen since the 1950s. And in the past year, the Porcine Epidemic Diarrhea Virus (PEDv) has led to deaths of millions of pigs in over 30 states across the country.

Of course, poultry farmers have their own expenses to reckon with, including the fluctuating cost of the corn and soybean meal that goes into feed. But last year’s corn and soybean crop was much more reasonably priced than those in recent years, which means poultry is much less expensive now, according to Bauhan.

Because of the pricing dynamics at play, small farmers who raise chickens have perhaps never encountered a better market to sell their goods in. Last year, higher feed prices forced Janie Burns to scale back her production to around a few hundred chickens. As a result, she bumped prices up to $5 a pound for whole chickens.

“I have some very loyal customers, but I also have a sense not everyone wants to pay that much for a whole chicken,” she said.

However, with the price of protein alternatives so high and the costs of supermarket poultry creeping up, it’s likely small farmers like Burns will stand to make a profit, according to Meyer.

“When the price of all these alternatives goes up, it’s going to give them a pricing advantage opportunity,” Meyer said. “Even somebody who’s selling a few hundred birds a year at a farmer’s market should have some real pricing opportunities here if they pay attention to what the prices are.”

Still, it’s not as if major chicken processors such as Perdue Farms or Tyson Foods, Inc. are losing customers. These companies too have benefitted from a market that has a sudden hankering for white meat. That hankering that helped Tyson Foods to double its profit in the second quarter, according to a conference call following the release of its financial figures. The company posted a record $9.032 billion in revenues for the quarter – a nearly $700 million increase from the year before.

“We’re pleased with the performance of our chicken segment as sales volume grew on strong demand,” Tyson Foods President and CEO Donnie Smith said during the call. Based on the performance of the company’s chicken sector, he added that they expect domestic chicken production to increase between 2 and 3 percent this fiscal year when compared with 2013.

While poultry producers stand to reap the benefits, those in the business of selling the meat to the consumers face a more difficult future, given the likelihood that the current trend is here to stay. Fast food restaurants and meat markets have come to rely on red meat to keep their accounts in the black.

Some of these retailers and restaurants have made the choice to stick to what’s familiar and keep selling the more expensive products. For Stanley Lobel, owner of the New York-based butcher shop Lobel’s, his customer base is what allows him to sell higher-priced beef.

“My clientele have made it in business and industry,” Lobel said. “If they want steak, they’re going to eat steak.”

Over at Burger King Worldwide, they also see money in beef – this time in the form of burgers. Earlier in May, the company made the surprising move to begin selling their signature Whoppers and other burger options as part of the breakfast menu at 5,000 locations.

The similar choice by many fast-food chains including McDonald’s and Burger King, to include low-priced burgers as part of dollar- or value-menus represents “a loss to keep attracting traffic to their stores,” according to Meyer. Still, he doubts how sustainable such losses can be for these establishments in the long run, saying, “at some point these prices have to be passed along to consumers.”

Thus, it should come as no surprise that fast-food restaurants and butchers alike a boosting their poultry-based options to keep earning a profit. Carl’s Jr., Hardee’s and KFC have all rolled out new chicken-based menu options in the past month. And Burger King announced its plan to bring back its “Subservient Chicken” viral ad campaign. The timing comes as the company plans to release a new chicken sandwich, adding to its “feathery” line-up of menu items that it said helped to drive sales and traffic in the first quarter that ended March 2014.

As for butcher shops, chances are you won’t be seeing many slabs of beef hanging from hooks in their freezers. With the average customer turning to cheaper protein options, meat peddlers have had to rethink their inventories.

“Friends of mine who are in the business, they’re moving from beef to poultry,” Lobel said. “They have no choice whatsoever.”

While consumers may lose out as prices across the board go up for food, Lobel said that taste doesn’t need to be sacrificed as grilling season heats up. His suggestion for poultry buyers is to butterfly whole chickens and barbecue them on the grill.

And much to the chagrin of chicken farmers, Lobel doesn’t think that the whole country is about to lay off the red meat for good. Instead, he thinks more people will follow his example: eating red meat sparingly and, when doing so, choosing cheaper cuts such as brisket.

“It’s the same way as people are reacting to how gasoline prices keep going up and you still can’t get anywhere on the highway,” Lobel said. “People will continue to eat meat like they have before – maybe not as much, but they will continue because beef is very satisfying.”