Chicken production and processing sector is mature in US and the US domestic demand for poultry has kept weak in the past several years. Demand for beefs seems to be growing faster than for chicken.   

Sector’s current, trend, causes behind trend, and future

Current and Trend

• Growth has been flat in this US number one protein source industry. It presents 1.1% annual growth between 2004 and 2014.
• Growth turned into negative zone in 2015/16 for most of companies but presented a strong rebounding in 2017, as indicated by increase in both volume and price, while slowed down again in 2018 as market price went down.
• Fluctuating demands from emerging market and declining sales price resulted from weak demand or over-supplies in US market together contributed to the general weak financial performance of companies in this sector in the pasts several years.
• Demands from emerging market contributed most of increases and only one fourth of global growth come from US domestic demands.
• Chicken will still be presenting the best choice for US consumers for protein intake considering balance of quality and cost of meat.

 

Causes behind the trend

• Chicken as one type of meat protein intakes presents a stable and mature industry in US .Supply and demand’s temporary imbalance and cyclic nature may be the factor determining changes in market price in short term.  
• The long term drivers for the growth in this industry come from 1.demographic factors – population growth. 2. export – demands of emerging market.
• Since most of growth in US chicken production and processing industry come from exports, demands from emerging market and fluctuation of US dollars play the key role in explaining the current and the trend in this sector.

 

Industry Future

We cannot see any fundamental changes in US domestic demands for chicken after considering demographic changes, changes in economy circumstance, or changes in consumers’ preference. This industry will keep flat or moderate growth as it did in the past decade unless it can gain larger help from increasing demands of emerging market for meat protein.

 

General Financial Performance of Companies In the Sector

While demand for chicken products of companies in this sector seems to be still not strong, demand may be picking up as indicated by signs from both increase in sales volume of them and rebounding selling price of their products. Backed by increasing sales volume and, to less extent, by rising price, sales of those companies has been growing in the past two years (annual 4-5% growth) as compared with  negative revenue growth ( -7%-0%) in 2016 and 2015.

Profitability of companies in this sector seems to be directly related with price and input costs of live stocks(feeding costs and live poultry costs). Between 2015 and 2016, continuingly declining selling price of chicken resulted from imbalanced supply and demand significantly hurt margin of companies while input cost such as feeding grain price declined as well. While we have seen improved margin in 2017 from those companies as a result of bouncing back of price and benefiting from renewed future contracts of feeding commodity, the margin turned to go down again as selling price went down and input costs went up in 2018. Therefore, most companies have been seen shrinking margin and cash flow in the past several years due primarily to declining price with weak demand behind it. And the current typical gross margin is about 12% with 5% SG&A and 6% operating margin.

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