Feed costs up $160 million per week

Economist says the broiler meat bird feed costs are $160 million per week higher today than they were last fall.

Dateline: Nashville, Tenn.

September 18, 2008—Blaming the U.S government’s ethanol policies for this cost increase, Agri Stats Vice President Mike Donohue told the audience at USPOULTRY’s Production and Health Seminar that the total feed ingredient cost increase for the U.S. broiler industry has been over $7 billion in the last 99 weeks. Broiler live cost per pound has risen from $0.26 per pound last fall to $0.45 per pound this fall, he said.

Donohue said that the extreme volatility in feed ingredient costs has made it very difficult for poultry companies to take optimal positions on future grain purchases. The normal spread that Donohue sees between the top company and the bottom company in feed ingredient cost per pound of broiler meat is around $0.025 and $0.03, but the spread is now around $0.13 per pound, the biggest he has ever seen. Most of this difference is because of purchasing variances, not because of differences in live performance.

There are some positive trends that Donohue sees in the industry’s production data. He said that the trend in livability is positive, even though the industry has been raising a bigger bird than it used to. He credited a relatively mild summer in the southern USA as well as extended downtimes between flocks and reduced housing densities for part of this year’s improvement. Average broiler live weight has increased from 4.3 pounds in 1988 to nearly 6 pounds in 2007, but average bird weight is off slightly so far this year.

The white meat yield as a percentage of broiler live weight has increased from just under 15 percent in 1994 to just over 20 percent today. Donohue said that the best companies are now seeing white meat yields as a percentage of live weight of 25.5 percent. This is a 25 percent improvement over the best results just 8 years ago. He said that that biggest variable he sees in companies not realizing good breast meat yield is because of turn over and poor workmanship on the cone deboning lines.

Feed conversion continues to improve on an annual basis, according to Donohue. From 1992 to 2008, the broiler industry has averaged a 2 point improvement in feed conversion each year. Even with high feed ingredient costs, Donohue said that companies are maintaining the total protein and lysine concentrations of their feeds, but they have backed off a little on the caloric density of the rations.

With high feed ingredient prices, feed conversion is more important than ever. Donohue said that when feed cost was around $130 per ton, a 1 percent improvement in feed conversion was worth about $1.30 but now that feed cost is around $300 per ton that same 1 percent savings is worth $3.00. He said that these cost increases are driving poultry companies to be more open to the use of enzymes and other ingredients that can help improve feed conversion.

Donohue said that the current situation that the industry faces, record high grain prices and relatively low meat prices, is the most challenging scenario that he has seen in his 28 years of working with the broiler industry. “We will struggle until supply is brought back in line with demand,” he said.—Terrence O’Keefe, editor WATT Poultry USA