Despite rising prices for chicken, consumer demand remains high, and the nation’s leading producer of chicken is working to take advantage of that demand, including investing $1.3 billion to automate its production facilities.
Tyson Foods Inc. has been focused on increasing its chicken production and hopes to reach 40 million broilers a week by the end of the fiscal year, up from about 37 million currently.
That could be a challenge, with inflation boosting the costs of feed, labor and transportation. The Springdale company said feed costs increased by $145 million in the third quarter and were up $430 million for the year.
“The turnaround that we’ve talked about for the last year now continues,” Tyson Foods CEO Donnie King said during an earnings conference call Aug. 8. “And I’m pleased with the progress that we’ve made. We still have work to do. Grain and the volatility around grain, supply, demand, so forth, still exists out there. But the demand for chicken is extremely strong. Demand for ready-to-eat chicken, for example, is very strong. And we’re at capacity as it relates to that.”
The average price of a pound of boneless chicken breast reached $4.61 in July, compared with $3.50 a year ago, according to the Federal Reserve Bank of St. Louis. The National Chicken Council released a report in July that showed 87% of consumers are buying the same amount or more of chicken this year compared with six months ago.
The United States Department of Agriculture estimates that Americans will eat an average of 98.3 pounds of chicken this year.
“U.S. consumers are being faced with higher costs for everything,” said Tom Super, senior vice president of communications for the National Chicken Council. “However, the data show they are continuing to rely on chicken as a healthy and affordable protein source to feed their families.”
That situation is reflected in Tyson’s third-quarter earnings report released Aug. 8. In it, the company reported a 26% increase in quarterly chicken revenue for fiscal 2022.
Tyson Foods reported nearly $4.4 billion in chicken revenue, up from $3.5 billion in the same quarter of 2021. The company said sales volume was actually down 2.1% in the quarter but a 20% increase in pricing resulted in the higher revenue. For the first nine months of 2022, chicken sales volume was up slightly but prices were up 17.9%.
Automation to the Fore
In an effort to boost supply, Tyson Foods is investing in new production facilities or the expansion of existing facilities.
It’s not as simple as more floor space, though, because companies need employees on those floors deboning or otherwise preparing chicken for the market. The COVID-19 pandemic disrupted the labor market, leading Tyson Foods to turn to automation to help meet demand. The company has said it plans to invest $1.3 billion during the next three years on automation for its production facilities.
“You are going to see more technology, mechanical deboning,” said Marvin Childers, president of the Poultry Federation in Little Rock. “That takes time. You can put mechanical deboning in, but instead of having employees manually deboning, you have to have employees who know how to work on that robot.”
And even though chicken prices have risen, poultry is still a cheap protein for most consumers. “Chicken is typically a more affordable protein in the meat case,” Super said. “When consumers’ dollars are stretched thin, especially in times of high inflation, a package of chicken is the more economical choice.
“Chicken producers are doing everything they can to produce chicken to meet the current demand. But like any other industry right now, we’re dealing with the same high input costs, transportation and trucking challenges, labor shortages, etc. So there is a balance that needs to be met there.”
King said he feels better about the company’s chicken segment than he has “in a long time.” There are still headwinds, such as clogs in the supply chain and the grain expenses for feed.
Childers doesn’t see the demand for chicken waning any time soon. Unfortunately, he doesn’t think the supply problems or price pressures are going away tomorrow, either.
“It’s the cheapest protein and consumption is increasing year after year,” Childers said. “The companies have record expenses: feed costs, labor costs. What that has caused is a bottleneck and reduced supply. When demand goes up, price goes up.
“The supply is there; it’s in the bottleneck. I think the bottleneck will be there for some time, and I think the demand is going to be there.”