Chicken glut drives wholesale prices down 37%, squeezing meatpackers

Retail chicken prices fall 1.4% in June as grocers run promotions

U.S. poultry companies are producing more chicken than consumers can buy, a surplus that has pushed wholesale prices for boneless, skinless chicken breasts down about 37% over the past 12 months and squeezed meatpacker profits, according to reporting by The Wall Street Journal. Suppliers including Tyson Foods, Pilgrim’s Pride and Wayne-Sanderson Farms ramped up offerings of breasts, wings and thighs over the past year, expecting Americans to trade pricier steaks and burgers for cheaper chicken sandwiches and tenders.

That shift in demand has not arrived at the scale processors anticipated. Beef prices are at record levels because of a nationwide cattle shortage, and that has not dented demand. Bigger chicken breeds and flocks spared from disease over the summer added to the supply, leaving an industry that slaughers more than nine billion birds a year with more chicken than the market is absorbing.

Chicken supplies were up about 4.5% in the quarter ended June 28 from a year earlier, according to Pilgrim’s Pride, the second-largest U.S. poultry processor. Through the first six months of the year, companies slaughered more than 4.9 billion chickens, up 3% from the same period last year and up 6% from five years ago.

“The head count was a little higher than everybody anticipated,” Pilgrim’s Pride Chief Executive Fabio Sandri said on a July investor call. “Demand was more than offset by the increase in supply.”

The weaker prices have weighed on profit margins. Pilgrim’s Pride’s second-quarter profit fell 96% from a year earlier to $13.4 million.

Large volume buyers — and ultimately consumers — are the likely beneficiaries, the Journal reported. Retail prices for boneless chicken breasts were down about 1.4% in June from a year earlier, according to the Labor Department. The cheaper prices have allowed Midwest grocery chain Fareway Stores to run a number of poultry promotions aimed at getting more shoppers into its stores. Jeff Cook, vice president of market operations, said the grocer ran a monthslong sale of $1.99-per-pound chicken breasts earlier this year and several $2.99-per-pound promotions, after pricing breasts at about $4.99 per pound.

“Poultry hasn’t seen the seasonal increase like it usually has,” Cook said.

Good Food Holdings, which owns supermarkets including Bristol Farms in California, is earning higher profit margins on chicken and using some of the savings to cut prices on more expensive beef products such as 80/20 ground beef and New York strip steak, CEO Neil Stern said.

Restaurants are adding more chicken items to menus to offer cheaper protein options for patrons, according to industry officials. “The best way you could be lowering your food costs right now is by having a more poultry-forward menu,” said Kevin Hourican, CEO of food distributor Sysco.

The glut follows a stretch in which chicken was immensely profitable for meatpackers. Massive corn and soybean crops made livestock feed — the top expense when raising a chicken — cheap, while demand for chicken cuts climbed steadily. Poultry companies ended up hatching too many chicks and overestimating demand, executives and analysts said. Favorable weather helped more birds reach maturity than expected, and diseases such as bird flu, which have previously decimated flocks, have not been as much of a factor in key chicken-raising regions. Roughly 90% to 95% of birds in a commercial chicken barn survive the six to eight weeks it takes until they are ready for slaughter, so even a small uptick can mean millions of extra chickens moving through processors’ plants.

“The industry shot themselves in the foot this year,” said Pooran Sharma, an agriculture analyst for financial services firm Stephens. “All you had to do was just be disciplined around production.”

A new genetic line of chickens is also fueling the glut. Cobb-Vantress, owned by Tyson Foods, rolled out a new chicken breed this year that grows faster on less feed, producing more meat at a lower cost. Tyson, the biggest U.S. chicken processor, has struggled in the past with breeds that produced unexpectedly high numbers of unhatched eggs.

Tyson executives said earlier this month that the company is more insulated than its competitors from depressed prices, after years spent improving its chicken operations. Most of the chicken processed at its plants now goes into the company’s Tyson-branded frozen, precooked products sold in grocery stores, where demand is growing. In the past, the company sold more of its chicken to other processors, distributors or restaurant customers at lower wholesale prices.

Pilgrim’s has been trying to grow its branded-products business, rolling out new chicken-nugget lines and growing its Just Bare brand to 13% of chicken market share from 1% in three years.

Poultry prices are historically volatile. Processors constantly try to match the number of chicks they hatch to the amount of meat their customers are willing to buy, and periods of low wholesale prices or high grain prices can put some chicken companies in dire financial conditions.