GAINESVILLE, Ga. -- In this annual outlook report, Poultry Times offers a glance at expectations from experts for the turkey, egg and broiler industries for 2007.
Each industry segment offers its unique perspective on what is around the corner for the poultry industry.
Turkey
Overall 2006 has been a good year for the turkey industry. Demand was up for breast meat products and the value for whole turkeys and breast meat products were high in 2006.
"It is not every day that the turkey industry can report $2-plus for breast meat prices," said former National Turkey Federation President Dr. Alice Johnson. "Overall the industry had an excellent year. According to the USDA and other economists, demand appears to be up for breast meat products and the value the industry is receiving for whole turkeys and breast parts is at or near record highs."
There are several challenges facing the industry in 2007. The rising cost of feed being one of the biggest potential challenges.
"From a public policy standpoint, our 2007 challenges to some degree will be shaped by the outcome of the mid-term elections and what Congress is able to accomplish in this year's lame-duck session," said NTF president Joel Brandenberger, who took office at the end of November. "We might still be dealing with the danger that industrial environmental laws ("Superfund" and "Community Right-to-Know") could be applied to farmers. Immigration almost certainly will be a major issue next year, as will ensuring continued funding for USDA's successful Low Pathogenic Avian Influenza control program.
"But, the biggest potential challenge is the rising cost of feed. Corn prices have been increasing steadily in recent weeks, fueled by a corn harvest that is slightly smaller than expected and increasing competition for corn and soybean meal. At some point, high feed prices could significantly hamper industry profitability, even if we continue to grow demand for turkey.
"It would be one thing if market forces alone were causing the higher prices, but there is a public policy component to this. Federal laws give ethanol producers an advantage when competing for corn in a tight market. Gasoline refiners are required to buy a certain amount of ethanol each year, so ethanol producers can pass 100 percent of their cost increases along to their customers. Turkey producers do not enjoy the same luxury. It is difficult to imagine Congress curbing its generosity to the ethanol industry or to back off on some of the other renewable fuels initiatives that divert soybeans away from feed.
"To ensure an adequate feed supply, more land is going to have to be moved into corn and soybean production. Since Congress is likely to be writing a new Farm Bill in 2007, feed availability is certain to play a major role in the debate."
The NTF has plans to continue is strong efforts to promote turkey through its foodservice marketing campaign.
"NTF will continue to conduct a foodservice marketing campaign," NTF Senior Director of Marketing and Communications Sherrie Rosenblatt said. "This past year, the Turkey. The Perfect Protein campaign successfully promoted turkey use in foodservice establishments. All of the program components work concurrently to reinforce the messages that turkey is a healthy, great-tasting protein that is adaptable to trends and appealing to a broad range of customers. One key measurement of the campaign's success is traffic to the NTF web site: www.eatturkey.com. As of Sept. 30, the foodservice section of the web site had seen a 17 percent increase over the prior year.
"The monies set aside to conduct a consumer public relations program were diverted to prepare for any avian influenza situation that could endanger consumer confidence for turkey products. Our objective has been to proactively educate the mainstream media. The program includes a 'central crisis lab,' which will be activated immediately in response to a crisis."
Eggs
Animal activism, food safety, environment issues and the size of the nation's layer flock are some of the issues that could put a damper on the egg industry in the coming year, according to United Egg Producer President Al Pope.
Pope noted that at a recent convention, a Humane Society of the United States official stated that "its goal was to ELIMINATE the poultry industry."
To that end, Pope said, among numerous other actions, HSUS spent more than $3 million dollars in the recent elections supporting candidates that supported them. "I might add they were successful."
Pope continued, "Why mention this since this article is an Industry Economic Outlook for 2007? For this reason: This issue has a bearing on the economics in 2007 and years to come. Activists' actions force the industry to add substantial costs to producing its product. Higher prices affect the customer's willingness to purchase as we compete with other protein products. Long-term this issue has the potential of greatly impacting the demand and thus the economic well-being of the industry. It is imperative that animal agriculture look beyond 2007 and recognize "WE ARE AT WAR.' "
Pope also noted that food safety and environmental issues fall in the same category.
"In all the developing countries where the animal welfare, environment and food safety issue have gone beyond being reasonable, the per capita consumption has dropped dramatically," Pope said and posed the following questions: Why would we expect anything different? What are you going to do to prevent this? Can anything be done to turn this tide?
Turning to egg prices, Pope reported that those prices should average approximately 10 cents per dozen higher in 2007 than 2006.
"But feed costs will eat up at least 5 cents of that and with other costs increasing proportionately it's hard to be optimistic," Pope said. With yet another year of marginal profits, if any at all, he said, "the industry continues to stubbornly refuse to bring its flock size in balance with demand."
He noted that "it appears the only thing that prevented the 2006 holiday period from being a bust was a modest export order by the U.S. Egg Marketers.
"Don't believe me? Take a look at flock size in 2004 and 2005, add 2 million more birds in 2006 coupled with a flat product demand (at best) and explain the increase of 25 cents plus per dozen difference," Pope said.
He also noted that consolidation will continue, and while cost plus contracts may be a "heaven sent" to those who have them, in 2007 "we will continue to struggle unless flock levels are lowered, substantial new customers are found, or companies implement a professional approach to egg marketing."
Pope suggested the egg industry examine the following:
How about thinking outside the box?
How about some new marketing strategies?
How about some new products and customers?
How about the egg industry declaring war on the status quo?
On the consumer side of the egg industry, a more positive outlook was voiced by Louis B. Raffel, president & CEO of the American Egg Board.
Raffel said there was "a twinkle" in the crystal ball for 2007.
"On the consumer demand side of the equation, lots of positive things are happening," Raffel said. "Consumer attitudes continue to improve, giving Americans permission to eat more eggs. More and more credible scientific data show it is not only okay to eat eggs, but also that nutrients in eggs are essential for optimum health. "
He noted that egg demand should continue to be strong, although not always as expected in the past.
Specialty eggs, further processed egg products and foodservice usage will continue to grow, as will the shell egg switch from traditional outlets to the superstores, Raffel said, adding that a new AEB Demand Index will help measure egg demand by segment and be independent from supply.
"Another big positive for 2007 will be the ascension of Joanne Ivy to replace me as president & CEO of the American Egg Board upon my retirement at the end of 2006. Her leadership will bring a fresh look and new thinking to AEB's already acclaimed advertising and promotion programs," Raffel said.
Broilers
Bill Roenigk, senior vice president and chief economist for the National Chicken Council, sees an unusual pattern ahead for chicken production.
"Several factors are coming together that I believe will result in a decline in chicken production in the first half of 2007, followed by a rally in the second half, leading to an overall annual increase of 2 percent," Roenigk said. "Sort of a 'valley and peak' pattern."
By the end of 2007, Roenigk expects to see about 37.2 billion pounds of chicken produced, as compared with 36.5 billion pounds estimated for 2006. In the first half of the year, however, chicken will face stiff competition from red meat and will be saddled with high corn prices.
"There's a lot of cattle in feedlots right now due to dry conditions on the range," he said as 2006 draws to a close. "We will see a bump in red meat production in early 2007."
Not helping matters is the cost of corn, which has skyrocketed 94 percent in 2006. Corn is currently selling for $3.40 per bushel as compared with $1.75 per bushel a year previous. Since the cost of corn is the largest single factor in the cost of producing a live chicken, chicken meat costs are being driven up by as much as five and a half cents per pound. Companies will be cautious about expansion in the face of high corn costs, he said. Production in the first half of 2007 will probably be less than it was in the same period in 2006, a six-month phenomenon that is rarely seen, Roenigk said.
By mid-2007, however, Roenigk says, the market will balance out, and a return to profitability will spark production increases that should carry through the year, leading to an increase of 2 percent in pounds produced year over year.
Exports will be a bright spot, Roenigk predicts, up as much as 5 percent in 2007 over 2006. The recent resolution of trade issues with Russia should help with exports to that country, still the number one market for U.S. chicken, he said.
NCC and other animal agriculture groups are concerned by the increasing diversion of productive farmland into the Conservation Research Program (CRP), in which the government essentially pays farmers not to raise crops on certain parcels of land.
Sharon Clark, vice president for transportation of the grain and oilseed division of Perdue Farms in Salisbury, Md., testified to the House Agriculture Committee on behalf of the Alliance for Agricultural Growth and Competitiveness (AAGC). She said federal policy should balance the increasing demands on agriculture for food and energy.
"Key to achieving this success is revising the Conservation Reserve Program so that it recognizes that environmentally sensitive lands need protection while sound, productive crop land needs to be available as market conditions warrant," Clark said. "AAGC believes there is significant acreage in the CRP that can return to crop production without any measurable impact on the environment, especially if soil, water and air issues are addressed through conservation tillage practices."
Top executives of NCC member companies expressed concern at the last NCC annual meeting about the increased diversion of corn into ethanol production, for which the federal government allows the refiner to claim a tax credit of 51 cents per gallon. They, too, urged the release of some of the land currently locked up in the CRP.
A study by Iowa State University suggested that the conversion of corn into ethanol is viable at prices as high as $4.05 per bushel, so it is likely that ethanol will continue to exert pressure on corn supplies, the researchers said.
Staff members Jeff Butler, Barbara Olejnik and David Strickland compiled this report.
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