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By Dr Simon M. Shane, Durham, NC, USA
At the present time most US broiler producers are generating losses from their production, processing and marketing operations. The situation is compounded by a less than optimistic outlook for recovery in consumer purchasing power in addition to no prospects for relief through lower feed costs.Key statistics on production for 2010, estimates for 2011 and projections for 2012 are shown in Table 1. For the first time in many years, USDA data indicate a decline in output. This is currently reflected in a 6% reduction in chick placements during the mid-September to mid-October 2011 period compared to the corresponding five weeks in 2010.
Exports represent the only redeeming factor for the industry although increases in volume from 2011 to 2012 are at best moderate. The values in Table 1 indicate increased exports as a proportion of production, due mainly to the relative decline in domestic output. The impact of feed escalation is shown in Table 2 which expresses feed cost and market price as an index, with 1999 as the base expressed as 100. Between October 2010 and the corresponding month in 2011 feed cost increased by 39%. Concurrently market realisation based on the USDA estimate declined by 18%. Deterioration on both sides of the cost: sales equation have seriously impacted profitability. The major figures on US broiler production and the influential factors on the industry are shown in Table 3, Table 4, Tables 5-6 and Tables 7-8.
Multinational ownership
With the decline in profitability among US producers and a disinclination of banks to advance funding, opportunities have developed for foreign producers to enter the industry. Apparent advantages represented by low feed cost, extreme efficiency, political stability, high technology and a well developed infrastructure have proven attractive in the past to producers in countries which have inherent structural deficiencies or high costs.
With the decline in profitability among US producers and a disinclination of banks to advance funding, opportunities have developed for foreign producers to enter the industry. Apparent advantages represented by low feed cost, extreme efficiency, political stability, high technology and a well developed infrastructure have proven attractive in the past to producers in countries which have inherent structural deficiencies or high costs.
During the past two years there have been a number of significant acquisitions which are changing the composition and culture of the US broiler industry. Currently it is estimated that 25% of total output is either owned or directly managed by non-US companies.
In October 2009 JBS of Brazil acquired Pilgrim’s Pride, the second largest US broiler producer after the family-controlled company filed for Chapter 11 bankruptcy due to injudicious hedging of ingredients. Their demise was also attributed to declining sales volume due to an inappropriate market mix and pricing policy.
In July 2010, Marfrig of Brazil acquired Keystone Foods with an output of four million broilers per week. This company produced for the food service segment of the market including the major multinational quick-service restaurants.
In December 2010, Townsend’s with a production of approximately two million broilers per week filed for Chapter 11 bankruptcy. Subsequently the company was divided among two buyers with Arkansas operations acquired by US producer Peco Foods. The North Carolina operations were purchased by Omtron of the Ukraine. After a period of consolidation and investment, the latter company elected to mothball the North Carolina operation pending an improvement in the US broiler market.
On June 9th 2011, Allen’s Family Foods, producing approximately 2.2 million broilers a week filed for Chapter 11 bankruptcy and was eventually acquired by Halim of Korea on July 28th. It is considered significant that this company had accumulated debts of €60 million and was acquired for €35 million plus inventory.
On October 28th 2011, Bachoco of Mexico acquired OK Foods which produces three million broilers per week. An adverse €11 million judgment against the company by disaffected contractors contributed materially to the perilous financial state of the company and hastened the purchase.
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Source: World Poultry, Vol. 27, No. 10, 2011
