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The poultry industry's 'new normal'

Although the financial position for the poultry industry has improved considerably, challenges remain as the volatility surrounding the industry seems to increase at a faster and faster pace, according to Mike Donohue of Agri Stats.

Donohue was speaking at the 2010 Financial Management Seminar, sponsored by the U.S. Poultry & Egg Association's Poultry & Egg Institute.

Donohue examined current trends in the broiler, turkey and egg industries, reminding the group that his theme ‘A time of Challenges for the Poultry Industry' was essentially a continuation of the past 2 years. "The industry must recognise that these changes have created a ‘new normal' and adjust accordingly. As an example, we need to expect corn prices at $4.20-$4.40 per bushel. Corn may never return to what were traditional levels of $2.50, since so much of the crop is being diverted to ethanol production and the price is now driven more by speculation than at any time in the past," he said.

Carl Blackham of BMO Capital Markets and Anthony Bahr of CoBank discussed bank lending trends. Bahr's statement ‘what a difference a year makes' reflected on what he considers improved credit markets for borrowers. Bahr also said "the U.S. appears to have emerged from recession, but economic growth still is somewhat subdued for this point in the cycle. However, the U.S. is ahead of the EU and Japan in recovery cycle and is poised to lead a global recovery," he added.

Blackham acknowledged that 2009 "was the worst credit market in many years, perhaps in our lifetime, but things are showing improvement." He said that merger and acquisition activity, which was at a 15-year low in 2009, has turned the corner in 2010, although the majority of the recent deals are much smaller than in the past.

"With cash shown on the balance sheets of investment grade companies currently at 60 year highs, many firms appear to be sitting on the sidelines waiting for just the right deal or waiting for the European financial crisis to be resolved," Blackham said. He noted that markets are generally improving for borrowers and that refinancing opportunities are available, but borrowers should consider refinancing sooner than later.

The program, developed by a committee of experienced industry professionals, also featured updates on domestic and global poultry markets, taxes, an economic outlook, and provided detailed guidance on other industry-specific financial topics.

* Photo: Alan Duncan (center), Mountaire Farms, and program committee chairman, reviewed the agenda with speakers Bob Childress (right) and Rob Gunther, both of Frazer Frost LLP, who presented a "Tax Update".

Source: U.S. Poultry & Egg Association

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