Chicken producers must deal with a number of challenges as they deal with a changing competitive environment in 2014, said panelists at the National Chicken Council.
What’s ahead for U.S. poultry and meat businesses? The 2014 outlook is mixed — everything from rosy with production increases and profits for chicken producers to gloomy with erosion of demand and margins for beef packers.
The outlook extremes for the meat proteins business are in a USDA forecast:
Chicken production is expected to be up 2.5 percent, with per capita consumption climbing by 1.5 pounds.
Pork production is forecast to be up 3.2 percent, with per capita consumption rising by 1.0 pound.
Beef production is expected to drop 5.6 percent, with per capita consumption plummeting by 2.7 pounds.
Rosy or gloomy, the outlook depends on where a company or protein sector sits. Not just the direction of the production forecast but the supply-and-demand factors associated with the cycles of flocks and herds and how a company or sector’s products and prices fit consumer trends.
Producers must deal with a number of challenges as they deal with a changing competitive environment in 2014:
If corn prices and chicken prices fall as expected in 2014, will chicken producers be able to profitably balance supply and demand?
As high beef prices continue in 2014 and 2015, will chicken’s potential gains in share of stomach be profitable and lasting?
Might consumers become bored with a proliferation of low-cost chicken in foodservice and retail outlets? How can producers guard against this?
Panel of executives provides poultry, beef and pork perspectives
A panel of poultry and meat company executives at the National Chicken Council annual meeting provided a dynamic look at how they expect these factors to play out in 2014. The panel included executives from Tyson Foods and Cargill Meat Solutions, multi-protein, multi-national companies with production in chicken, beef and pork; Simmons Foods, an integrated poultry company; and OMP Foods, a poultry further-processing company.
Chicken best-positioned meat protein in 2014
All four of the executives agreed that the USDA forecasts are directionally correct — with chicken and pork production and consumption up and beef numbers down — and that of the three major meat proteins chicken is best positioned for 2014. Donnie King, senior group vice president, Poultry & Prepared Foods, Tyson Foods, said, “I believe the chicken industry is looking at a good 2014. Chicken production will be held in check to some extent by limited broiler breeder supplies. At the same time, feed ingredient costs will be lower in 2014 due to a bigger grain harvest. As grain prices go down the market prices of chicken should go down, so I believe chicken consumption will increase some as a result.” USDA’s projections for chicken production, in fact, may be too low, according to one panelist. Ed Fryar, chief executive officer, OMP Foods, said, “USDA is forecasting a 2.5 percent increase in chicken production, but I believe the increase will be closer to 3.5 percent to 4 percent. There are constraints at this time on how fast chicken companies can increase production, but they are making money and will find ways to expand their production.”
Outlook unfavorable for beef packers
John Keating, president, Cargill Beef, Cargill Meat Solutions, foresees a tough year ahead for beef packers. “Fewer cattle will be harvested next year with fewer animals available to packers. This means the beef packing industry will continue to experience a very high cost of goods, and there will be continued record-high beef prices. “What that does to our business is that we will see an expansion of the gap between beef, pork and poultry at retail and wholesale price levels. So beef will continue to be, at least next year and probably the following year, the highest cost protein in the United States. It will take beef producers at least two years to rebuild the herd. “We expect a very, very tough 2014 for the beef industry. Going into 2015, the retail and wholesale price spreads will continue to widen between beef, pork and poultry,” he concluded.
Competition between chicken, beef and pork
Todd Simmons, chief executive officer, Simmons Foods, said, “The key thing for the chicken industry is that we will have a nice runway in the competition with red meats for the next several years.”
Tyson’s King agreed, saying, “Chicken is projected to grow, and I think chicken and pork will take market share from beef.” King pointed to reasons why chicken production is expected to resume its growth while beef production will likely continue a downward slide. One reason is chicken’s versatility as a food item. “A lot of things can be done with chicken. It can be center of the plate. It can be an appetizer. It has a great flexibility,” he said. However, the biggest reason, currently, is the spread between beef and chicken prices. “Beef prices, I think, based on its availability, will continue to go up,” he said.
Chicken winning retail shelf space
from beef The consumer has a choice and votes with their pocketbook, King said, and chicken is taking share from beef. “In retail stores, chicken is being featured more,” he said. “Boneless skinless chicken breasts, and to some degree boneless dark meat products, are taking shelf space from ground beef.”
Beef industry not promoting some competitive products
Keating agreed that chicken products are taking share from beef products. “Chicken has taken market share from ground beef, because the price of ground beef is almost double that of chicken breast meat today.” However, the beef industry has products that would successfully compete with chicken on price but is afraid to promote them, according to Keating. Those include Cargill’s finely textured beef as well as lean finely textured beef, a competitor’s beef product. “So there are those competitive beef products that are very sustainable — and that we can be justifiably proud of — but sometimes we are afraid to talk about them. To me it makes absolutely no sense. I hope we have learned from what the last couple of years has shown us.”
Don’t overlook consumer preference for beef
While the next two years are expected to be challenging for the beef industry, Keating said he expects beef to be competitive again.
“I think beef will always be a staple in the U.S. diet,” he said. “Three to five years from now consumption patterns will change again. Price is the issue right now in declining beef consumption.” What’s more, the current decline in U.S. beef exports will be reversed as world demand for meat proteins increases. Beef will be competitive again worldwide, he said.
Is there a downside in winning too much share of stomach?
Simmons offered some cautionary advice for chicken marketers about a possible downside in winning too much share of stomach too quickly. “It is incumbent on us in the chicken industry to drive innovation so that the consumer does not get tired of eating chicken. When consumers get bored with a food product, marketers start to move away from using it. If we are going to maintain share of stomach we have got to continue to innovate,” he said.
Global competitiveness is a concern
The global competitiveness of U.S. producers is an issue of big concern for King. “My fear is that as a nation we will so regulate, tax and limit our businesses that we won’t be competitive globally in the future,” he said. “I’m not concerned about U.S. producers’ ability to produce what consumers want. My concern is about our ability to produce meat and poultry in a way that is profitable,”
Chicken dark meat is critical to success
Simmons echoed the thought that maintaining competitiveness internationally is of huge importance to the U.S. chicken industry. He said the ability to market dark meat at competitive prices has been critical to the U.S. chicken industry’s success during periods of high feed ingredient prices and low U.S. demand. “The fact that U.S. chicken producers have been able to sell the dark meat side of the bird at the prices that they have been able to command over the past several years has been a very positive thing.”
Beef packer issues a challenge to chicken producers
At the panel session’s conclusion, Keating issued a challenge to chicken producers: “I think your industry is going to be the leader among the major meat proteins for the next couple of years. The chicken industry is in a very, very good spot for the next couple of years. But don’t forget, beef will be back! The beef industry will continue to do the things necessary to connect with consumers and drive beef consumption. So go ahead and forget about us, and you’ll wake up and we’ll be right on your