WASHINGTON, June 24, 2015 –The U.S. poultry industry and its customers are starting to emerge from this year's onslaught of a highly pathogenic avian flu that has cost poultry farms 48 million birds – mostly laying hens and turkeys destroyed and buried by animal health teams to arrest the outbreak and decontaminate the 223 sites where the virus has surfaced since late last year.
The disease's retreat, at least for this summer, is the good news. Egg prices, for example, had already trended up this year after a lot of California egg farms closed or relocated late in 2014 rather than comply with new animal welfare rules there. Then, the loss of 24 million laying hens and other chickens in Iowa, the top egg-farm state, fanned fears of shortages, and the U.S. average wholesale price of large eggs soared to $2.37 a dozen by early June.
Still, many egg farms have been ramping up their flocks to compensate for the lost hens, and USDA now projects egg production will be off by only 5 percent this year versus 2014. At the same time, many restaurants and food services are responding to the high prices by trimming egg offerings and hiking egg prices on their menus, thus shaving market demand. So those high egg prices are coming down and have already fallen by a third this month, to $1.55 – now up only about 15 cents from the 2014 average.
Looming for this fall, however, is the very possible return of the same virus or a mutated strain of it, when waterfowl and other wild birds migrate south across the continent. Animal health officials are quite sure that migrating birds carried the highly pathogenic flu strain into the Mississippi flyway and to Midwest farms. But, an intensive investigation by USDA's Animal and Plant Health Inspection Service concludes, “given the number and proximity of farms affected . . . it appears the virus is spreading in other ways as well.” It may be carried between farms by farm or delivery trucks, contaminated equipment shared by farms, by farmworkers, by small birds that find their way into chicken houses, or even by the wind, APHIS suggests. Thus, the huge U.S. meat-chicken sector, hardly touched by this outbreak, may be vulnerable to the next one.
Meanwhile, what happens to 2015's laying hen flock and the egg market? Maro Ibarburu, analyst with the Egg Industry Center at Iowa State University, says consumer reaction to the outbreak and the resulting spike in egg prices remains a big unknown that will surely influence the egg market. The outbreak delivered a “very large shock in the egg industry,” and Ibarburu predicts that “it will take many months for the infected facilities to come back to full production,” though he also expects egg producers are pursuing many options to rebuild the national flock of laying hens.
New USDA statistical reports this week suggest a recovery is well under way. While Iowa's layer flocks shrank 26 percent from April to May, in the thick of the outbreak, the U.S. flock of laying hens in May remained only 7 percent smaller than a year earlier. Also, May stocks of frozen eggs were still 99 percent of year-earlier volume. Meanwhile, the pace of hatching eggs – those for producing more chickens for meat and laying hens – was up 4 percent in May versus May 2014, promising continued flock expansion.
Nonetheless, the outbreak is having broad economic effects in the upper Midwest. Iowa Gov. Terry Branstad is calling on the White House for federal disaster declarations for the state's four hardest hit counties, estimating that the outbreak will cost the poultry industry in his state about $1 billion, and 1,500 workers statewide – in farming, processing, trucking and elsewhere – will lose their jobs. Meanwhile, analysts at the University of Minnesota, the second hardest hit state, eyeball that state's economic losses to the virus at $310 million, including $113 million in poultry production.
Meanwhile, as hundreds of workers contracted by USDA continue to bury birds and cleanse contaminated sites, all parts of the poultry industry, along with others serving them, are counting losses and figuring out their adjustments to the massive bird depopulation.
The U.S. turkey meat supplies will still be generally adequate this year, despite losses of 8 million birds to the virus. In part, that's because farms accelerated production by 7 percent in this year's first quarter versus the year-earlier period. One result is that frozen turkey stocks on May 31 were 4 percent higher than a year earlier – as were stocks of frozen hens, the main product Americans buy for their holiday feasts.
Tom Elam, Indiana-based poultry market analyst, expects that wholesale turkey prices, which set records last year and are now at record levels for June, will again break records this fall, with fresh 12-pound hens topping last fall’s record of $1.30 a pound, and frozen hens, exceeding last fall's record of about $1.22. “We may run short of the exact turkey you want to buy,” especially freshly butchered birds this fall, he predicts. Some will opt for ham, which is in abundant supply, he says, “but I'm fairly optimistic that we'll have enough (frozen) hens for Thanksgiving.”
Grocers have already stocked frozen turkeys for the year-end sales. What's more, countries that import U.S. turkey and chicken meat have eased potential U.S. domestic shortages – especially of legs, thighs and quarters – by banning U.S. poultry shipments out of fear of importing the virus.
Elam says the massive loss of breeding stock is forcing turkey farmers in the affected region to reassess breeding programs, which are typically planned at least three years ahead, plus retain parent stock longer to maximize their hatching pace. Still, the reduced parent flock will mean fewer poults – baby turkeys -- placed for feeding, and probably a 6 percent to 8 percent slowdown in slaughter through fall.
The foreign ban on U.S. poultry is affecting the broiler chicken sector as well. The chicken meat industry is expected to ramp up production by more than 4 percent overall this year, taking advantage of reduced feed costs. Stocks are mounting, in part because of bans on U.S. poultry meat by South Korea, China and others. Total chicken supplies on May 31 were up 21 percent from a year earlier; thighs, up 31 percent. So prices are softening. The USDA composite whole-bird price has slipped below $1 per pound, about 13 cents less than a year ago.
Toby Moore, spokesman for the U.S. Poultry & Egg Export Council, says the damper put on U.S. exports by importing nations' bird flu action will take a while to resolve. South Korea, a big customer, for example, requires a certification of no further cases of the highly pathogenic virus in flocks for six months before the suspension can be lifted.
Some countries are also slapping the import ban on fresh U.S. table eggs and hatching eggs, though the biggest buyer, Mexico, has not suspended shipments.
Moore suspects that some countries, such as Turkey, which has banned all U.S. hatching eggs, and others, such as Canada, Jamaica and some Central American nations, which have suspended shipments from the affected U.S. states, may wind up slowing their own domestic poultry production. “We think there will a ripple effect down the road,” he said.
Ripple effects could even reach the feed market. University of Illinois economists say the drop-off in U.S. flocks could nick 50 million to 100 million bushels from next year's demand for corn.
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