Turkey producers sweat out a third year of falling prices

Birds fewer but bigger

supply outstrips demand

November 26, 2003|By BLOOMBERG NEWS

U.S. turkey farmers are enduring the lowest prices in 11 years, extending the industry's slump for a third year.

As Americans prepare for traditional turkey dinners tomorrow, producers are being squeezed as meat production rises faster than consumption. A truckload of 950 turkeys from farmer Dave Burkel Jr.'s six farms in Minnesota and North Dakota fetches $14,000, down 9 percent from $15,400 last year.

"I don't think enough people have cut production," said Burkel, 41, who reduced his flock by 35 percent this year, to 1.5 million birds, and closed a farm in North Dakota.

"Basically, there's still too much turkey meat on the market," he said.

A slump in the U.S. turkey business, which produced about $3.7 billion worth of birds last year, also has hurt the largest U.S. processor, Hormel Foods Corp., and others such as Pilgrim's Pride Corp. and the Butterball unit of ConAgra Foods Inc.

Hormel's Jennie-O Turkey Store unit had a loss of $127,000 in the quarter that ended July 26, compared with profit of $15.4 million a year earlier. ConAgra said Butterball sales declined in the quarter that ended Aug. 24.

"Profitability has been decimated in the past year because of the oversupply," said Jonathan Feeney, an analyst at Wachovia Securities in New York.

Farmers will sell turkeys on average for 61.7 cents a pound this year, the lowest since 1992 and down 4.3 percent from 64.5 cents last year, the U.S. Department of Agriculture said. Prices have fallen each year since reaching 71 cents in 2000.

"Prices have been going down because there's a lot of poultry on the market and the export market was very soft," said David J. Harvey, an agricultural economist with the USDA's Economic Research Service.

Burkel, a fourth-generation turkey farmer in Frazee, Minn., says he's making 60 cents to $1 profit on each bird.

"You can't replace your operation for the kind of profits we're seeing today," said Burkel, whose biggest buyer is Hormel. "In other words, you wear your operation out and then you have nothing. We're in survival mode. That's all."

It hasn't helped that the price of soybean meal is up 34 percent this year and corn is up 2.2 percent. Turkeys eat a mix of cornmeal and soymeal for 14 to 20 weeks before they are slaughtered, and feed accounts for up to two-thirds of the cost of raising them.

"All areas of the livestock industry have cycles, and the turkey industry is just in a down cycle," said Karen Zimmerman, president of P&J Poultry Products Co. in Northfield, Minn.

"We'll make some money this month because November is always a good month for turkey growers," Zimmerman said. "But we've lost money the rest of the year. Supply is getting tighter, so next year will probably be better."

Losses on some farms have led to production cuts. The United States is on track to raise 269.2 million turkeys this year, down from 272.4 million last year 2002 and the fewest since 1989, according to the Agriculture Department.

As farmers produce fewer birds, supplies of turkey meat have been rising, reaching a record 5.71 billion pounds last year, partly because the birds are being bred to be larger.

The average turkey this year weighs 26.99 pounds, up from 18.8 pounds in 1970 and 21.3 pounds in 1990, according to USDA figures.

The wholesale price of an 8-pound to 16-pound hen was 68 cents a pound in mid-November, down from 70.5 cents a year earlier. Prices usually are higher in November than at other times of the year because of Thanksgiving.

Lower prices have been a boon to consumers. Eighty percent of frozen turkey was sold in a promotion last Thanksgiving, at an average price of 66 cents a pound, said the USDA's Harvey.

U.S. per capita consumption of turkey is forecast to be 17.8 pounds next year, the same as this year, the USDA's Economic Research Service said.

Consumption will be little changed, even though the cost of beef has risen, because turkey producers and processors have yet to develop enough products that are as easy to prepare, preferably in a microwave oven, said Vern Pierce, an agriculture economist at the University of Missouri at Columbia.

"Most people would say turkey is better for you than beef," Pierce said. Americans "don't care what they spend on food," he said.

"They just want it to taste good and be convenient. The turkey industry just hasn't learned that yet."

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