Donohue: ‘Pricing relates to general economy’

Michael Donohue, vice president of Agri Stats Inc., discussed significant changes affecting the poultry industry including consumer behavior, market changes, increases in production costs and challenges in bird health at the National Meeting on Poultry Health, Processing and Live Production last month in Ocean City. (Photo by Nancy L. Smith)

OCEAN CITY, Md. — “Our industry has changed a great deal” because of COVID-19, Michael Donohue, vice president of Agri Stats Inc., told about 330 attendees at the National Meeting on Poultry Health, Processing and Live Production on Sept. 28.
He discussed significant changes affecting the industry including consumer behavior, market changes, increases in production costs and challenges in bird health.
He said consumer food spending habits have changed.
“In February 2020, 48 percent of food dollars were being spent at home,” Donohue said. “When we got into March and April, it climbed to 60 and 66 percent of our dollar being spent at home.”
From July 2020 to June 2021, the spending trend began to reverse. “In June 2021, we had gone back to 51 percent being spent on food away from home,” he said.
Poultry prices have changed significantly, Donohue said. “In some weeks of April 2020, the industry was selling breast meat at an average of 60 cents a pound, one of the lowest prices I ever saw. In the middle of 2021 around the Fourth of July, it got to $1.95.” It is now about $1.80 or $1.85, he said.
Unlike other years when breast meat prices rise around Memorial Day and the Fourth of July then declining rapidly after Labor Day, Donohue said,
“We are seeing prices rebound because there is a strong demand and there are some structural limitations to how much we can produce,” he said.
He continued, “A good rule of thumb is every time boneless breast meat goes up or down by a dime, it affects overall revenue per pound of meat we sell by about two cents.”
He said prices for commodity frozen bulk leg quarters also have fluctuated due in part to trade with China. “Since the end of 2020, prices climbed dramatically to about 40 or 43 cents because U.S. exporters have access to markets that had been unavailable to them.”
Wing prices, Donohue added, used to correlate closely to the Super Bowl but, “Since April 2020, the demand for wings both at home and outside the home has caused prices to increase tremendously up to about $2.70 in September. Last week cut wings were going for $3.30 or $3.35 a pound.”
“Think about the economics of this,” Donohue said. “You have a six-pound chicken, wings are about 8 percent of the live weight of a chicken, so you have about half a pound of chicken in two wings or about a quarter pound in one wing. If you’re getting $3 for wings, every wing is worth 75 cents. Every time a bird pops out of evisceration missing a wing, that’s 75 cents down the drain.”
Chicken feet, too, have increased. “Before the trade agreement with China, the average price for wings was about 50 cents a pound; now the average price is getting really close to $1.80, three and a half times what it was 22 months ago.” Donohue reported. “In the average plant, the paws weigh 2 to 2 1/2 percent of the live weight and 70 to 75 percent get harvested in the average plant.
“Paw recovery is a critical part of what we do. It’s not just a co-product right now, it’s a central part of everything that we sell.”
Donohue also discussed production costs, noting corn prices rose from $4.20 a bushel in summer 2020 to $7.50 by autumn. “Every dollar increase in a bushel of corn affects the live production costs by about 2 1/2 cents a live pound.”
Soybeans, he said, have had a similar trajectory.
“Soybean meal was $450 a ton after last year’s harvest difficulties,” he said. “Every $100 a ton of soybean meal is two-and-one-half cents in live cost,” he said.
“So, the net effect of the higher corn and soybean meal cost from September of last year is that live production cost went from 35 cents up to 49 cents on every pound. Thirty-five or 40 percent of chick cost, too, is also related to the cost of feed ingredients.”
This year, “especially here on the Eastern Shore, you’ve seen some pretty intensive spikes in what you’re paying for a bushel of corn or a ton of soybean meal.
“In 2018-19, we had a carryout of 23 percent. Now, we’re down to 4 percent in 2021,” he said.
Bird health, too, presents challenges Donohue said, “Pullet mortality was running about 6 percent in 2017. Last month it was the highest I’ve seen — it was 7.89 percent, that’s average pullet mortality in the industry. If you don’t get them to the hen house, they’re not going to lay any eggs.
“It goes back to taking antibiotics out of the breeder hatchers. Weekly hen mortality is increased. Traditionally it would be .25 to .3; last couple of months, it’s running close to .44 on a weekly basis. You pick up an extra tenth of a percent a week times four over a 40-week production cycle, you get 4 percent higher pullet mortality. It’s no longer 12 percent or 11 percent, it 15, 16, 17 percent.
“You’re losing eggs as a result of that. Hatching eggs per hen house are significantly lower now than 4, 5, 6 years ago. Weekly egg production is down and even more dramatically is the hatchability in the industry right now. Traditionally, we would be looking for 83, 84 percent. Now, with some of the changes in male lines primarily driving this, we’re down close to 80 percent average hatchability with little likelihood that this is going to change in the short term or medium term.
“In the long term, if you shift male lines, it doesn’t mean that there’s no penalty on some other performance factor that you really like — conversion ratio, growth rate, yields, etcetera.”
Broiler mortality is generally about 4 percent this time of year. This year, “we are close to 4.9 percent mortality,” Donohue said. “Fifty-seven to 58 percent of birds being processed are being fed NAE. They are not necessarily being sold NAE.”
“Wage rates in the industry are up. Now the average wage rate for the chicken industry, with overtime and benefits is $24.30.
Labor shortages are affecting industry so “contract deboners are booming but shipping tanks of front halves out to be deboned kills you on breast meat yield. You get product out the door, but you lose fairly significant amount of yield depending on how far they’re transported, how many containers are out there and how long they’re being held.”
Pricing relates to the general economy, Donohue said. “The economy is up 4, 5, 6 percent. Restaurants are packed, people are looking to go out to dinner more frequently, so demand has been there. Supply has been a challenge largely because of bird health issues so even if people wanted to put more product out there in anticipation of demand, the inability to access more hatching eggs, access more broilers being limited by increased mortality — all those are complicating factors.”
Donohue compared the change in the Consumer Price Index and chicken prices since 1990. The CPI has more than doubled in those 30 years; but the price of chicken has risen only 35 or 36 percent. He said all parts of the industry should be proud of this achievement. “You have all been part of this ability to continue to produce high quality protein to help feed or families and to feed people around the world and we should rightly be proud of that.”
The conference, organized by Delmarva Chicken Association, was held at the Clarion Resort Fontainebleau Hotel.