The need to restrain production
The recent decline in export demand for processed
portions, whole birds and leg quarters has created an oversupply situation in
the markets of both Brazil and the USA. By Simon
The recent decline in export demand for processed portions, whole birds and
leg quarters has created an oversupply situation in the markets of both Brazil
and the USA.
Concern over avian
influenza in the countries importing
frozen products has necessitated cutbacks in placement. In Brazil, complexes
dedicated to export have been seriously impacted since these units were designed
and structured to supply specific markets in the Middle East and more recently
Russia. The downturn in demand has resulted in closure of plants and
consolidation of production to restore the balance between production and
The situation in the USA is more complex since a large number
of plants, perhaps as many as 80, are involved in export of leg quarters. This
means that this product has to be released to the domestic market, lowering the
revenue from both dark and white meat. Alternatively leg quarters have to be
exported at ever decreasing unit cost. Facing the reality of soft markets the
major US integrators are reducing output.
Tyson Foods and Pilgrim's Pride
have announced cut-backs in response to increased storage costs
and suboptimal shipments. The response by broiler integrators in both Brazil and
the USA is a rational response to disequilibrium between supply and
Contrast the situation in the US egg industry. History has
shown that producers of generic shell-eggs make money only two years out of five
with a breakeven or loss in the intervening years. Data for the first five
months of 2006 shows a loss of 7 cents/dozen consistent with ex-farm revenue of
36 cents/dozen and a current cost of production in the region of 42 cents/dozen.
This differential represents a loss of 73 cents/hen during the first half of
situation resulted in cutbacks? Statistics compiled by the USDA
show continued expansion, retention of flocks through their second
cycle of production and little reduction in the volume of replacement pullets.
Industry observers maintain that there are 3 to 4 million excess hens in the
national flock. If these hens were removed from production by attrition and
depletion, unit realization would be enhanced to a level which would restore
Unfortunately the US egg industry operates on the
principle of "don't cut him and don't cut me, cut the guy behind the tree".
Ultimately losses cannot be sustained as producers deplete
working capital. Low prices it is said "cure low prices". Would that the US egg
producers realize their collective folly and follow the dictates of reality and
impose self-restraint in production. The example set by the broiler industry
represents a model to be emulated.
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