The weak economy was supposed to be a plus for the chicken industry. After all, it has a price-competitive advantage over pork and beef. The common theory is that consumers will trade down to chicken from beef and pork.
But, chicken hasn’t experienced the magnitude of price increases we’ve seen in pork and beef, though the impact of higher corn prices has weighed heavily on the poultry industry as well.
Placement of chicks was down 5% last week, compared to a year ago, and down 1% so far on the year. While those don’t seem like major reductions in comparison to the other protein sources, they are significant when one considers that poultry has been on a seemingly relentless upward trend.
The poultry industry has the capability to rationalize supply and maintain margins to a much higher degree than beef. As a result, Goldman Sachs this week added Sanderson Farms to its top-pick list, foreseeing as much as a 26% rise in stocks. It pointed to the expected decline of 3-4% in supply through the first half of 2012, and an expected price increase of around 15% for chicken.