Your Buffalo Wings may cost you more. As this week's chart portrays, the cash price of broilers appears ready for a breakout to the upside. Broilers are younger chickens bred for meat consumption, like that used for the popular chicken wrap sandwiches every fast food restaurant seems to be offering. Consumption of chicken has been generally strong due to the shift from red meats and rising preferences for chicken in a variety of forms. Broiler prices had weakened in second half of last year in response first to falling grain prices in the first part of year which had encouraged producers to expand flocks. Then with rising grain prices, feeding costs rose. Response of breeders to subsequently lower profitability was to reduce flocks. Birds are sold into market which initially acts as increased supply depressing prices. After that flock liquidation effect, prices recover due to reduced supply of birds.
The pricing picture suggests that the adjustment process may have been largely completed. Broiler prices have been rising for several months as grain prices moved higher. The supply of broilers seems to have been brought into balance with the costs of raising the birds. Broiler prices now are rising along with grain prices. Such is the environment of the future for Agri-Food. Prices are going to rise in order to keep the producers in the chain profitability. Without profits supply will decline, pushing prices back up to profitable levels. The entire Agri-Food production chain has entered into a new era of sustained profitability that will benefit companies all along that chain. Is your portfolio participating in the new world of Agri-Foods, or is it still suffering from the continued losses at banks?
AGRI-FOOD THOUGHTS are from Ned W. Schmidt,CFA,CEBS, publisher of Agri-Food Value View, a monthly exploration of the Agri-Food grand cycle being created by China, India, and Eco-energy. To review a recent issue, write to firstname.lastname@example.org.