Profit margins for US chicken producers are well above historical levels, according to Gro’s newly launched Broiler Chicken Margin Monitor. Those hefty margins today are likely to push up broiler supplies and pressure prices for almost the next two years, a Gro analysis shows.
Restaurants and food service companies have been reeling as chicken breast prices have doubled over the past year. Now, chicken buyers can be expected to take advantage of the lofty producer margins to bargain for better prices going forward.
For producers, the high margins are an incentive to expand production, as shown by the increased chicken slaughter pace this year. Gro expects that further production expansion is likely, and could exert downward pressure on prices in the medium to long term.
Gro’s Broiler Chicken Margin Monitor estimates producer margins across the US, providing users with a comprehensive view of industry profitability and the likelihood of future changes in broiler chicken price and supply. The application, which updates automatically each day, enables chicken buyers, such as restaurants, supermarkets, and food distribution companies, to make better-informed decisions about pricing and product offerings for the medium and long term.
US chicken producer margins are currently at 13 cents per pound, the Gro Monitor shows. While that’s down from a recent peak of 19 cents per pound in June, margins are still sharply above the negative margins of minus 3 cents at the beginning of 2021. Over the past decade, chicken producer margins averaged 9 cents per pound. Margins got a big boost this year as chicken prices rose sharply, while feed costs have eased from their highs.
Gro’s analysis shows a historical relationship between producer margins and later changes in price and slaughter rates. Over the past decade, the broiler chicken cutout — the weighted average price of carcass cuts — has declined by a half cent per pound for every cent of margin gained. The price change tends to begin six months after the margin increase and lasts for an additional 14 months, a total of 19 months from the initial margin move.
Margin gains over the past decade also impacted slaughter rates, which rose by 10,000 tonnes per month following a 1-cent-per-pound increase in broiler producer margins. The acceleration in slaughter rate tends to lag the margin gain by four months, enough time to go from layer flock molting to slaughter of fully grown chickens.
While 10,000 tonnes represents less than 1% of the current monthly slaughter volume, it’s a significant change for the industry and can pressure prices. Today’s high producer margins also could influence food service companies’ long-term decisions, with the knowledge that chicken supplies are likely to increase.