Turkey farmers are crowing

Some birds are bringing a $2.40 profit, best since 1986

November 23, 2005|By BLOOMBERG NEWS

WASHINGTON -- John Burkel, a fourth-generation turkey farmer in Badger, Minn., may be having his most profitable Thanksgiving in almost two decades.

Burkel may make $2.40 on every 20-pound turkey he sells for tomorrow's holiday, compared with a loss of 60 cents in 2003. Burkel maintains a flock of about 80,000 and supplies birds to Hormel Foods Corp., the largest U.S. turkey processor.

"It's probably the best since 1986," Burkel said. "There just aren't as many birds" after years of losses and overproduction forced many farmers to quit, he said.

U.S. production this year will decline 2.6 percent to 256.2 million birds, the fewest since 1988 and the second-straight decline, the government said. Demand hasn't been affected by the threat of bird flu.

Higher prices have boosted shares of Hormel, producer of Jennie-O turkeys, by 12 percent this year to a record high of $35.24 on Nov. 15.

The cost of a traditional Thanksgiving dinner for 10, including turkey, stuffing and pumpkin pie, will rise 3.1 percent this year to $36.78 from an average of $35.68 last year, the American Farm Bureau Federation said. Excluding supermarket discounts, the cost of a 16-pound turkey will rise 5.7 percent to $15.11, or about 94 cents a pound, the Farm Bureau said.

Not all consumers will be paying more. Many supermarkets this week are discounting frozen turkeys to promote grocery sales, hoping to make up the difference by selling more food. Fresh turkeys are usually sold at full price.

"Turkeys are the primary purchase for most families" at Thanksgiving, said Vivian King, spokeswoman for Roundy's Supermarkets Inc., of Milwaukee, which has 135 stores in three Midwest states. "We want to make sure we are competitive."

Roundy's supermarkets, including Pick 'n Save in Wisconsin and Illinois, Copps Food Center in Wisconsin and Rainbow Fresh in Minnesota, are offering turkey for 39 cents a pound with a minimum grocery purchase of $25, King said.

Profit margins on turkey "will be excellent for producers and processors again this year, but not for the retailers," said Tom Elam, 59, president of Strategic Directions, a food and commodity consultant in Indianapolis. "Many retailers absorb the higher costs with price specials when the consumer buys a minimum of other food items."

About 80 percent of turkeys sold for Thanksgiving last year were discounted, data from the U.S. Department of Agriculture said. Prices paid for whole, frozen turkeys in November 2004 were two-thirds of what consumers paid for the same turkeys during the other 11 months of the year.

Farmers are selling turkeys on average for a record 72.5 cents a pound this year, up 4 percent from 69.7 cents last year, the Agriculture Department said. Prices have risen 17 percent since 2003, when turkeys sold on average for 62.1 cents a pound after four straight years of declines.

The value of turkey production may reach a record this year even as the number of birds declines. The value increased 14 percent last year to $3.06 billion, the second highest after the record $3.13 billion in 1996, government figures show.

"After the losses in 2002 and 2003, there has been a lot of consolidation in the industry and production has come down more in line with demand," said Paul Reed, director of marketing at Norbest Inc., of Midvale, Utah, the 16th-largest U.S. processor and the nation's oldest turkey cooperative. "Profits in 2004 were good, and 2005 was better."

Part of the improvement reflects increased export demand, which will increase 31 percent this year to a record 578 million pounds, the Agriculture Department's Economic Research Service said this month. The United States will account for 40 percent of total world exports.

"Next year may not be as good as 2005, but it should be a third consecutive year of profitability," said Elam, former chief economist for Elanco Animal Health, a unit of Eli Lilly & Co. that develops drugs for livestock.

The $29 billion U.S. poultry industry has yet to be affected by concern about avian flu, which has yet to be found in the United States, the world's largest producer and exporter of poultry.

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