U.S. Poultry Industry Will Cut Production

Stung by near-record-high feed costs and the loss of the Russian export market, the U.S. poultry industry is cutting production after more than a decade of growth. Tyson Foods Inc., the nation’s largest poultry producer, announced last week that it would cut production by 7%. Another producer, Hudson Foods Inc., said Monday that it would do the same, and Allen Hatchery Inc., which ranks 10th in the nation, will cut its output by 5%.

ConAgra Inc. said it will not cut production, but the loss of the Russian market is expected to have a negative impact on the company.

Late last month, Russia suspended imports of U.S. chicken, mainly dark-meat leg quarters, ostensibly due to concerns over U.S. food inspection procedures. Some analysts have said that Russian farmers and industrialists are upset that 45% of food sold in Russia is imported.

Talks last week between the Department of Agriculture and Russia failed to resolve the issue and have not yet resumed this week in Washington.

Analysts and food company officials say the production cuts may be temporary, with output possibly increasing this fall should grain prices decline.

“I think the [Russian] thing was the catalyst, but it was bound to happen,” said Gary Lohr of Lohr Associates, a livestock economic forecasting firm in Colorado Springs, Colo.

Lohr calculates that poultry producers are losing 5 to 10 cents per pound on each chicken they sell, largely because of near-record-high prices of corn, a key feed ingredient. Also, he said, domestic consumption has become stagnant and surplus breast meat is piling up in warehouses.

In February, the Agriculture Department reported 1.02 billion pounds of poultry in warehouses, a 31% increase from a year ago.

In 1995, the U.S. poultry industry produced 25 billion pounds of chicken, and until recently 1996 production was estimated at 26.34 billion pounds. In 1987, the industry produced 15.5 billion pounds.

Richard Loeb, a spokesman for the National Broiler Council, an industry lobby, said that the 1996 production estimate has not been recalculated since the Russian news and subsequent announcements of production cutbacks.

Before the embargo, poultry sales to Russia reached $500 million in 1995, about 5.5% of U.S. production.

Allen Hatchery Inc., a Seaford, Del., poultry firm, will cut production by 5% for the second quarter but may restore that production in July if the U.S. corn crop appears healthy, said Dennis Cross, the company’s director of commodity purchasing.

He said that high feed costs are largely responsible for the cutback but that the loss of the Russian market is also a factor.

Cross said that Russian inspectors were at his company’s plants on Monday but that he is not optimistic about receiving export clearance.

“It would be a hell of a feather in our cap, but I’m not optimistic about it,” he said.