NORTHWEST ARKANSAS — Tyson Foods, Simmons Foods and George’s pumped up poultry production last year to 18.35 million pounds a week, according to a recent survey completed by WATT Poultry USA.
The local players had plenty of company as 80 percent of the nation’s 42 largest chicken processors made hefty increases in readyto-cook chicken production.
But industry participants say a 3 to 4 percent production cut is required to bolster chicken prices high enough to oftset rising grain expenses, according to Farha Aslam, analyst with Stephens Inc.
She notes the four largest companies have some grain price protection through the summer months but smaller producers might have considerable losses.
“We would not be surprised to see a number of smaller producers forced into bankruptcy during this downturn,” Aslam said.
She estimates the industry is losing about 12 cents per processed pound so far this year for basic commodity chicken.
Analysts said poultry companies had hoped to increase marketshare to fill the protein vacuum from dwindling cattle and swine herds that are decreasing beef and pork availability.
Consumers are expected to eat an average of 85 pounds of chicken this year, which is 1.2 pounds more than 2010 and 4 pounds more than 2009, according to the U.S. Department of Agriculture.
In the same two-year period, beef consumption is expected to decline 2.6 pounds per person.
And pork consumption estimates are down 3.4 pounds per person.
Local chicken companies wasted no time last year, ramping up production to combat a sluggish foodservice sector and fi ckle export markets that persisted beyond the 18-month recession that ended in June 2009.
Tyson Foods regained its position as the nation’s largest chicken company in 2010 with 20 percent of the U.S. marketshare after Pilgrim’s Pride cut weekly production by 6.5 percent as a result of its 2008 bankruptcy.
Tyson led the industry by processing 161 million pounds of ready-to-cook chicken per week, a 10.1 percent increase from 2009.
Donnie Smith, chief executive officer of Tyson Foods, told investors in November the company had been a little too aggressive and had decided to cut production by 6 percent through March to keep product from stacking up in the freezer. Simmons Foods cranked up production by 13.6 percent last year, processing 16.3 million pounds per week.
George’s processed 15.6 million pounds a week, up 11.4 percent from 2009.
Analysts say a recovering food service segment could soak up excess supplies and be key to the performance of all three local chicken companies this year. Food service includes sales to restaurants and institutions that provide meals prepared outside the home.
Food service accounts for 42 percent, or $4.24 billion, annually of Tyson Foods’ totalchicken sales. Tyson expects slight improvements this year and a bigger turnaround in 2012.
Simmons’ food service sales were roughly 47 percent of company revenue and worth about $329 million last year.
“Approximately 65 percent of our domestic sales are in this channel,” said Todd Simmons, chief operating off - cer of Simmons Foods. “We believe that promotions on chicken items will be strong in the 2011 and 2012 periods and this should help demand somewhat.”
The WATTS survey noted that 83 percent of George’s annual sales, or $500 million, last year were in food service. George’s had no comment on expectations and two phone calls to the company were not returned last week. Restaurant traffc has been slow for more than two years, but NPD Group, a market research company, forecasts a 1 percent increase during the fi rst quarter. The company reported adult per capita restaurant visits declined 8 percent since September 2008.
“Some of the areas most affected by the recession have stopped declining or are starting to edge back up, like families with kids and nondeal visits,” said Bonnie Riggs, restaurant industry analyst at NPD.
Business, Pages 9 on 02/20/2011