As Chicken Production Leaps, Analysts Watch for Price Drop

U.S. chicken production is rising faster than expected, sending prices plummeting and dimming the profit outlook for poultry companies, including Tyson Foods Inc., the nation’s largest, analysts said.

While Springdale, Ark.-based Tyson probably will report a rise in fiscal third-quarter profit today, analysts said they’ll be watching for signs from the company about how the meat and chicken surplus will affect profit in Tyson’s next fiscal year.

U.S. chicken farmers are joining the ranks of cattle and hog producers, who’ve watched beef and pork exports sour, supplies balloon and prices sink. Demand for white meat probably won’t be strong enough to offset an expected 7% rise in chicken output in 1999, analysts said.

“We’re going to have a real glut of protein in the second half of this year,” said Credit Suisse First Boston analyst David Nelson, who rates Tyson shares a “hold.” With so much meat around, chicken prices tumbled in recent weeks at a time when they typically peak for the year, analysts said.

The wholesale price of a chicken fell to 38.1 cents a pound in July from 38.5 cents in June, down 13.4% from a year ago, the U.S. Department of Agriculture said Friday. Prices usually rise this time of year before dropping off in autumn, analysts said.

Weaker prices and surging inventories are dimming the outlook for chicken producers such as Tyson.

While analysts expect Tyson to report that profit rose to 33 cents a share in its fiscal third quarter from 20 cents, Tyson shares are down 17% to $18.69 in July.

Total frozen poultry supplies in June were 842.1 million pounds, or more than 3 pounds in storage for every man, woman and child in the U.S. That was higher than 813.7 million pounds in May and 38% more than the 611.1 million in storage a year earlier, the USDA said July 20.

Chicken is piling up because a virus that trimmed the flock last year hasn’t been as big a problem this year. Breeding improvements also are producing heavier birds in less time than in the past, analysts said.

In July, the USDA said the average live weight of chicken rose to 5.04 pounds in May, up from 4.86 pounds a year earlier. In the first five months of the year, 17.1 billion pounds of chickens were slaughtered, up 6.7% from a year earlier. That’s almost twice the average annual increase in chicken output, analysts said.

“We’ve got way too much meat coming at the consumer,” said John Pedersen, a poultry industry consultant with Poultry & Egg Statistics Inc. in Lilburn, Ga.

Abundant, inexpensive supplies of pork and beef, chicken’s biggest competitors at the meat counter, cut into demand for poultry, analysts said.