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Poultry Production to Increase in Fourth Quarter, Wall Street Analyst Predicts - Washington Report

Chicken prices have stayed strong, but a jump in fourth-quarter production will lead to significant softening in November and December, a Wall Street analyst is predicting as reported by Meatingplace.  Prices usually pull back at this time of year but have not slumped so far because retailers are heavily promoting chicken, keeping demand very strong, said BB&T Capital Markets analyst Heather Jones.

“The strength seems to have caught many by surprise, as the (boneless, skinless) market tends to become sluggish this time of year,” Jones wrote in a note to clients.

Some large further processors limited buying this summer in anticipation of weaker pricing in early fall, but their inventories became too tight, forcing them to buy aggressively to fill orders, Jones wrote.  Chicken pricing has declined just 1 to 2 percent since the start of August, compared to a drop of more than 5 percent at this time last year, she said.

But Jones is forecasting production to rise by 4 percent or more in the fourth quarter, much stronger than the pace year to date. The breeder flock is up about 2 percent, weights are increasing, and some producers are not cutting back production as they typically do in late summer, she noted.

“Given that there does not seem to have been a dramatic acceleration in end-market demand, we believe that the (boneless, skinless) market should soften in coming weeks and begin to behave more in accordance with the typical seasonal pattern,” Jones wrote.

Big bird producers’ spot margins are running at two times last year’s level and should remain healthy in the fourth quarter due to falling feed costs, Jones said.