Pricing Poultry: Cost Edges Higher As Supply Drops

By John Dobberstein, Tulsa World, Okla.

Jun. 9–Shoppers might want to start filling their grocery carts and freezers with chicken.

The lowest poultry prices in years are beginning to rise again as producers and grocery stores recover from a glut of chicken products on the market.

The abundant supply was caused by sagging demand for chicken overseas amid fears of avian flu. Access to lucrative markets in Asia and Europe were cut off, and prices plummeted.

Ironically, chicken producers were gearing up production last fall when the bottom fell out on demand, said Dave Harvey, a U.S. Department of Agriculture economist.

“The stocks started building, and the prices were free-falling,” Harvey said. “By the end of the third quarter, things should be much better (for producers). Of course, we’re keeping our fingers crossed that nothing else happens.”

Morril Harriman, executive vice president of the Little Rock-based Poultry Federation, said he doesn’t know when the glut will be completely reduced.

“It’s still going to take some time to move some of the product that is in storage,” he said.

Wholesale prices for a fresh, whole chicken have averaged 61 cents a pound through May — down 18 percent from the same period last year.

Wholesale boneless, skinless chicken breasts, from January through May, averaged $1.01 a pound, nearly 28 percent lower than the same period in 2005. Wholesale prices for leg quarters, thighs, wings and other chicken parts were anywhere from 17 percent to 41 percent lower this spring.

But it’s unclear if consumers, nationwide, got a price break.

The U.S. city average for a whole chicken in April was $1.05 — only 1 cent lower than the $1.06 average price for 2005, according to Consumer Price Index data. The consumer price for bone-in chicken legs was $1.25 a pound in April, lower than the last year’s annual price of $1.32.

Some chicken parts are more price-sensitive than others, Harvey said.

“It’s hard to tell what consumers are paying,” he said. “It would vary a lot from store to store.”

Paul Roach, meat director for Reasor’s, says the Tahlequah-based grocery store chain is passing savings along to shoppers.

He pointed to a recent sale offering a five-pound bag of leg quarters at 79 cents a pound, and boneless, skinless chicken breasts at $1.43 a pound.

That’s less than the $2.49 a pound that Reasor’s was charging a year ago for chicken breasts, he said.

“It doesn’t do us any good to not pass” the savings on, Roach said.

“The glut of chicken on the market is probably going to take a while to clean up,” he said. “We just deal with the warehouses and poultry manufacturers. As it becomes available to us at a lower cost, we pass it right on to consumers.”

This week, Albertson’s was selling boneless, skinless chicken breasts or tenders for $1.99 a pound, and 10 pounds of wings, thighs or drumsticks for $10. Officials at the grocery chain did not respond to a request for comment.

Prices are showing signs of resiliency now.

The wholesale price for boneless, skinless chicken breasts in May was $1.18 a pound, USDA figures show — up from 97 cents in April and the highest price since September. Chicken thighs were 81 cents a pound in May after ranging from 91 cents in December to 66 cents in April.

But that doesn’t mean chicken isn’t a good buy. Breasts and thighs are still cheaper, per pound, than a year ago.

The mass of extra chicken has produced one other benefit — a windfall for Oklahoma’s emergency food pantries.

The Community Food Bank of Eastern Oklahoma is expecting a 40,000-pound shipment of chicken soon from the USDA. The organization serves 440 programs in 20 counties.

“What it means for us is we’re getting an amazingly large donation of frozen protein products,” said Neil Cather Dieterle, a spokeswoman for the Tulsa-based food bank.

“Protein products like that generally are not donated,” she said. “This is a very, very positive thing for the food bank and the community.”

Chicken producers can use the donations for tax write-offs rather than dumping the product on the market and lowering prices even more. Harriman said donations by poultry companies occur every year, but they’ve become more frequent in the last two to four months because of the market oversupply.

He wouldn’t comment on the producers’ motivations for the donations.

“That’s their decision on how to handle that,” Harriman said.

Gary Mickelson, a spokesman for Tyson Foods, said its donation to America’s Second Harvest was larger than normal because of the chicken glut, but the company participates in anti-hunger efforts because it believes in the cause.

Because of how federal tax codes are written, Mickelson said, “from a pure economic and cash flow standpoint, we would have been better off rendering the product for use as an animal feed instead of giving it away.”

Chicken producers are grappling not only with lower prices, but also high feed prices and un certainty in overseas markets because of bird flu outbreaks.

Exports made up about 15 percent of the 47.9 billion pounds of chicken produced in the U.S. last year, according to USDA data.

Shipments of chicken to Russia — a huge market for leg quarters — have been completely cut off. Access to some Asian markets has been disrupted.

That caused inventories of chicken products to build up. In April, producers were holding 841 million pounds of frozen poultry in cold storage, according to the USDA. That compares with 692 million pounds in March 2005.

The low prices haven’t hurt poultry farms much, since they do business with processors on long-term contracts. But poultry producers have reported millions of dollars in sales declines this year.

Sanderson Farms Inc., the nation’s sixth-largest poultry producer, said it lost $16.6 million in the second quarter, mostly because of the decline in exports.

Tyson Foods and Pilgrim’s Pride Inc. have also reported sales declines.

Both Tyson Foods and Sanderson said they’re cutting production to bring supply in line with demand and combat higher feed prices.

“While we expected tough and uncertain conditions in the protein market, it has been far more difficult than we previously projected,” said Tyson’s chairman, John Tyson, in April after announcing substantially reduced earnings projections in 2006.

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John Dobberstein 581-8413 john.dobberstein@tulsaworld.com

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Copyright (c) 2006, Tulsa World, Okla.

Distributed by Knight Ridder/Tribune Business News.

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