Sample Report Broiler Industry Situation and Outlook (This report does not include current projections.)

Transcription

1 Sample Report Broiler Industry Situation and Outlook (This report does not include current projections.) 1.1 Weekly Price Forecast Summary Fresh Charts Frozen Charts BROILER REPORTS 1.2 Weekly Production Forecast Hatchery Activity Slaughter 1.3 Monthly Price Forecast Fresh Price 1.4 Monthly Production Forecast Quarterly Supply Breed Flock & Hatchery Slaughter Fresh Table Frozen Table Liveweights RTC Production Frozen Price 1.5 Long Term Price Forecast Fresh EMI Prices 1.6 Long Term Production Forecast Supply and Disposition Breeding Flock & Hatchery Slaughter 1.7 Broiler Costs and Returns Feed Ingredient Costs Broiler Industry Profitability 1.8 Competing Meats Total US Meat Production 1.9 US Broiler Imports & Exports Broiler Exports, Annual Exports by Product Code 2.0 International Broiler Trade World Broiler Production World Broiler Exports Supply & Disposition Tables 2.1 US Broiler Industry Structure Boiler Companies Location of Production Consumption Patterns Industry History 2.3 Definitions 2.4 Vital Signs Publications 2.5 Archives Liveweights RTC Production Cold Storage Frozen EMI Prices Liveweights RTC Production Cold Storage Production Costs Broiler Exports, Monthly Exports by Country World Broiler Domestic Use World Broiler Imports Structure Component Yields Marketing Form Charts For more information, please contact EMI Analytics: Phone (260) Copyright All Rights Reserved. This document is intended solely for the use of Express Markets, Inc. (EMI) participants and Express Markets, Inc. Analytics (EMIA) participants. Unauthorized distribution or use is a violation of federal copyright laws. The data, price quotations and other information contained in this report are assembled from data submitted to EMI from sources within the industry. EMI makes no representations or warranties as to the usefulness or the data or information. EMI specifically disclaims any and all liability for any damages resulting upon the reliance, by subscriber of the data or information contained in this report.

2 1.1 Weekly Price Forecast **Sample from July 2006** Market Overview Chicken supplies have been declining with continuing production cuts which show in the slaughter and freezer inventory reports. For the month of June, weekly reported slaughter averaged about 1% below year ago levels and July is expected to be at least 2% below year ago levels. This is the first time we have experienced sustained deliberate production cuts with the modern industry structure, and we expect the production cuts to last into next year. The US hasn t set a precedent in modern history for price movement that coincides with production cuts, which will likely cause some counter-seasonal or unusual price patterns in some products in the coming months. In general, we expect product movement to be similar to slightly higher than year-ago, drawing down inventories, and therefore expect most product prices to increase in the coming weeks. However, competing meat products in the retail sector have been priced at competitive levels in recent weeks, therefore we anticipate a short term slowdown in retail chicken movement for some items. July posted record-high temperatures in nearly every state, and above normal temperatures continue throughout the major broiler producing areas. We can expect to see a continuation of lower growth rates than in a normal summer, plus lighter than desired average liveweights at slaughter, higher mortality, and an increase in downgrades. Even with the use of cool cells and tunnel ventilation, it is difficult to reduce the temperature of the houses enough to prevent weight losses. It s likely that weights in some areas will be a couple tenths per pound lower with the big bird deboning segment affected the most. This could cause production cuts to be even larger than anticipated for the next few weeks if temperatures continue to stay high. Current market conditions appear to be supportive of higher prices for most products. Retail movement in some areas has been a little slower than anticipated due to the above normal temperature. For most of the US both food service and fast food have been average, and the start of several fast-food and casual dining chicken promotions are expected to pull more white meat through August. Supplies of wings and leg quarters have been reported as clearing and slightly tight while breast meat products appear to be in sufficient supply. Plant to plant and further processing sales are increasing as lower production tightens supply, with some buyers reporting difficulty in locating preferred bird sizes or cuts. Whole Broilers/Wogs Markets for whole broilers and wogs are trading sideways to slightly higher in recent weeks, with EMI fresh whole broilers >= 3 pounds up slightly to 65.7 cents per pound for the last week of July, compared with 69.8 cents a year ago and up from a spring low of 50.5 cents per pound in late April. The average for EMI fresh wogs pounds didn t fully sustain its June runup, and has dropped 3.5 cents in the last two weeks to average 59.9 cents per pound. Although the week-to-week averages probably won t be steady, in general we expect whole broilers and wogs to climb 1-2 cents in August in response to declining supplies and increased featuring. February EMI Analytics

3 90 EMI WOG, lbs, fresh weekly weighted average top 1/3 EMI WOG, lbs, fresh bottom 1/3 70 cents/lb /4/06 forward forecast 35 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 For 8&9 piece marinated cut-up whole broilers average prices dipped as much as 2 cents in June, caused in large part to discounts paid by retailers for deli featuring. Industry sources report that some of the discounting was due to temporary backlogs in mid-size birds, and other discounting was associated with large-volume sales. It appears as though the majority of the discounting is over for now, and average prices are back up to slightly above 76 cents and will possibly carry a penny higher in August as production cuts continue to affect the overall supply. 90 EMI 8&9 pc, marinated, fresh weeky weighted average /28/06 forward forecast cents/lb top 1/3 EMI 8&9 pc, Marinated, fresh bottom 1/3 USDA Monday Georgia Wt. Avg. 60 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 February EMI Analytics

4 White Meat White meat broiler markets have been moving generally higher over the past few weeks, with the exception of B/S breast meat which dropped noticeably. The EMI market average for fresh B/S breast meat peaked the week ended July 7 at $1.34, and dropped to $1.20 for the last week in July. While it is not unusual to see a small drop after the July 4 th holiday, in mid July this year the supply of B/S breast meat was reported by some sources as adequate to heavy for many parts of the US, citing slower than expected retail movement as the primary cause. While our canvass of major sellers in the commodity market for this product failed to show persistent large volumes in excess of needs, it appears that in this case the limited surpluses were enough to create a negotiating point for buyers which erased part of the seasonal gains. 270 EMI B/S Breast Meat, unsized, fresh weekly weighted average top 1/3 EMI B/S Breast, Unsized, fresh bottom 1/3 190 cents/lb Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Whatever the precise cause of the decline, we don t expect these conditions to be sustained into August. In addition to ongoing intentional production cuts, recent record-high temperatures in many parts of the US can be expected to further lower overall poultry production. The greatest impact from high temperatures can be expected in big bird deboning operations, which would reduce B/S breast meat. In the past few days, several major sellers into retail channels have told us they are actually short of B/S breast meat and may be forced to ship less than the desired quantities to some outlets. Going forward, we estimate that any surpluses are gradually disappearing, and look for EMI unsized B/S breast meat to approach $1.35 by late August--perhaps higher if the production cuts and heat impact are more than what is now anticipated. Upside risk to the market forecast could be considerable. With an unprecedented and sustained production cut underway plus production issues with heat, wholesale commodity markets could be very touchy. February EMI Analytics

5 Wings Fresh whole wings have continued to move higher, gaining 2 cents last week to average 86.2 cents per pound. EMI jumbo wings were 3 cents higher at about 84.5 cents per pound, and drummette/midjoint wings were up over 5 cents to approach $1.02 per pound EMI Fresh Wing Products weighted average prices Drummette/Midjoint Wings Jumbo Wings cents/lb /4/06 forward forecast Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 The run-up in June in all wing product markets was highly unusual, and we attribute it to a bit of a shortfall in wings due to fewer broilers taken to slaughter wings are a piece-count item, and fewer birds killed mean fewer wings. Plus, we ve observed an uptick in downgrades and wing condemnations, which may be related to the unusually hot weather. Freezer inventories of wings have been reported lower than normal. Going forward, we believe wings may be close to topping out for now, perhaps carrying only 1-3 cents higher in the next few weeks. September usually sees a significant bump in wholesale markets, with staging for fall and winter holiday needs. With wings already starting at relatively high levels, the market gain to September peaks are expected to be limited to roughly 5 cents from current levels. Dark Meat Market sentiment for both domestic and export trade for dark meat is starting to show signs of topping out and possibly softening. Retail featuring for dark meat cuts remains good, but high prices are starting to generate some push-back from export buyers. For the week ending July 28 fresh EMI leg quarters averaged 37.6 cents per pound, which is up over 3 cents from a month ago. We are hearing few reports of negotiated sales above 39 cents, with most of the current activity closer to the cent point. With sales for future export starting to provide less price support, fresh wholesale leg quarters may carry 1-2 cents higher but are not likely to top 40 cents for a weekly average. By late September or October, fresh markets are expected to be easing lower. February EMI Analytics

6 For the week ended July 28 EMI bulk frozen leg quarters averaged 24.8 cents per pound, up 9 cents from the start of June. The movement in frozen leg quarter markets tends to lag significantly behind fresh markets, as frozen export sales on average take 4-6 weeks to be completed and invoiced. We see that frozen product is closing the gap to fresh, and it appears as though excess supplies in freezers have been moved and product is clearing in a more current fashion. Therefore, although fresh markets are likely close to topping out, EMI average wholesale prices for frozen bulk leg quarters can be expected to carry 8-10 cents higher before topping out in the cent area in mid September. cents/lb EMI Leg Quarters, fresh (usually mp per week, more recently 9-11 mp) EMI Leg Quarters, frozen (40-60 mp per week) 8/4/06 forward forecast EMI Leg Quarters weekly weighted average Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 The primary driver of the current prices has been improved export demand, particularly to Russia. Some sellers tell us they booked export leg quarters for July at cents per pound, a few reports carrying into August at prices up to 42 cents, and others tell us they are completely booked carrying into September. However, we don t expect the average wholesale prices for EMI frozen leg quarters to match these reported sales--these bookings may represent the top 1/3 of invoiced prices as reported by EMI for frozen leg quarters. Continued booking for export will be needed to maintain these levels. Reports of export bookings in the low 40 s raises questions of pricing US leg quarters out of some markets. And, if any additional bird flu fears or other issues cloud the export picture, markets could lose part or all of the increases that have been made in the last few weeks. Dark meat markets are heavily influenced by exports, which generally remove 40%-45% of the dark broiler meat produced in the US. Trade in US dark meat can ebb and flow with the seasons, with supplies and prices of other meats, with political access issues, and with changes in offerings or price from other supplying countries. International concern about bird flu and possible declines in poultry consumption will continue to complicate the dark meat forecasts. February EMI Analytics

7 Fresh EMI Prices EMI Analytics Broiler Forecast August 4, 2006 forward forecast weighted average weekly Weekly Average >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> 21-Jul 28-Jul 4-Aug 11-Aug 18-Aug 25-Aug 1-Sep 8-Sep 15-Sep 22-Sep 29-Sep 6-Oct 13-Oct 20-Oct 27-Oct Current Week EMI Whole Birds, >= 3 lbs, fresh EMI WOG, lbs, fresh EMI Wog, Marinated, fresh EMI 8 & 9 pc, Marinated, fresh EMI Front Halves, fresh EMI Front Halves, Small, fresh EMI Breast, whole & split, fresh EMI Breast, whole & split, Small, fresh EMI B/S Breast, Unsized, fresh EMI B/S Breast, Unsized, Small, fresh EMI Breast Trim <= 5% fat, fresh EMI Breast Trim 6-15% fat, fresh EMI Tenders, fresh EMI Tenders, <= 1.2 oz, fresh EMI Whole Wings, fresh EMI Whole Wings, Jumbo, fresh EMI Wings, Drmts & Midjnt, fresh EMI Leg Quarters, fresh EMI Whole Legs, fresh EMI Whole Legs, jumbo, fresh EMI B/S Legmeat, fresh EMI Drumsticks, fresh EMI Thighs, fresh EMI B/S Thighs, fresh EMI MDC, <= 15% fat, fresh EMI MDC, > 15% fat, fresh Weekly Production Forecast **Sample from July 2006** Weekly Hatchery Activity There has been little change in the short-term supply outlook during the two weeks. The US broiler industry continues with an intentional and possibly sustained production cutback. We have adjusted the EMI Analytics forecasts for broiler slaughter to reflect a modest decline. As more data becomes available, projections will be adjusted. For July slaughter, chick placements started in early May and finished in mid June. As reported by NASS, weekly chick placements averaged about 2.3% below year-ago for June. However, the monthly Chickens and Eggs report indicated that we were only down 1.2% from a year ago and shows 91 million more chicks hatched than the weekly data. The weekly data is subject to revisions for 6 weeks, and the revision pattern continues to be for slight increases which could possibly explain the difference in the reports. February EMI Analytics

8 Broiler Chicks Placed, 19 State USDA 19-state report, 2 wk moving average /29/06 forward forecast million head per week announcement of cutbacks Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec The last few weeks of hatchery activity reflect birds to be slaughtered in August. Chick placements for August slaughter are estimated to average about 1% below year-ago. 85.0% Weekly Broiler Hatchability EMI Analytics analysis of Agri Stats and USDA data July 29 forward forecast 84.5% 84.0% 83.5% 83.0% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec EMI Analytics, All Rights Reserved average February EMI Analytics

9 EMI Analytics analysis of broiler hatchability using Agri Stats and USDA data shows recent weeks running 0.5% to 1% or more better than year-ago levels. Therefore, a 1% drop in egg sets will probably not result in a 1% drop in chick placements, when compared with the prior year. A 1% change in hatchability can mean as much as a 2 million chick difference in the number of chicks placed on feed from a given number of hatching eggs. We expect to see higher hatchability rates with production cuts, because better quality eggs will be selected for incubation which inherently provides an improvement in hatchability as well as subsequent chick quality and livability. Weekly Slaughter The US broiler industry is making intentional and possibly sustained production cutback. We have adjusted the EMI Analytics forecasts for broiler slaughter to reflect a modest decline. As more data becomes available, projections will be adjusted. May weekly slaughter was reported to average 163 million head per week, for a decline of about 0.5% compared with May USDA s monthly total released in the Poultry Slaughter report showed a 0.9% decline in slaughter per kill day, compared with May The two most recently reported slaughter weeks, which ended July 15 and July 22, were reported by USDA at 2.4% and 1.8% below year-ago, respectively. Preliminary data for the week ended July 28 points to slaughter of about 161 million head, down 1.5% compared with year-earlier. 12% Weekly Broiler Slaughter USDA, 2 week moving average, % change prior year 10% 7/29/06 forward forecast 8% 6% percent 4% 2% 0% -2% -4% % Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec For all of June, slaughter numbers are estimated to average 162 million head per week, close to 1.0% below year-earlier. July is when company announcements of cutbacks are due to make a substantial impact. For July, our estimates of weekly slaughter currently look for an average of 158 million head per week, down 2.3% with July February EMI Analytics

10 EMI Analytics projections for August weekly slaughter point to an average of 162 million head per week, also down 2.4% or more from year-earlier. Hard data for September is just starting to come in with the latest egg sets. Our forecast for September is for weekly slaughter to average about 160 million head per week, which would be slightly lower than year ago levels. Weekly Liveweights Weekly average weights in May were reported by USDA at 1.5% higher than year-ago at about 5.4 pounds. The May monthly average was reported in the last Poultry Slaughter report at 5.49 pounds, an increase of 2.4%. As our forecasts now stand, we do not expect gains in average liveweight of more than 1% for the next 12 months. 6% 5% 7/29/06 forward forecast Weekly Broiler Average Liveweight 2 week moving average, % change prior year 4% 3% percent 2% 1% 0% -1% -2% % Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec However, heavier than year-ago average weights are expected to continue in accordance with longstanding trends to bigger broilers. For June, we estimate average liveweights in the 5.35 pound area, about 0.5% above June 2005 s weekly average. In July, our projections look for weekly weights to make a smaller increase relative to year-earlier, as the production cuts appear to be focused mostly in the heavier broiler weight ranges. The increased temperatures are also likely causing weight gain to be slower and so we expect average weights to drop by 1 to 2 tenths of a pound. The heat will also have a larger impact on larger sized birds. EMI Analytics forecasts look for an average weekly liveweight of about 5.30 pounds for July, which would be an increase of roughly 0.3% from July February EMI Analytics

11 Weekly Ready-to-Cook (RTC) Production Weekly reported data for May is estimated to be seasonally higher than April s average of 640 million pounds per week, but with a smaller rate of increase compared with year-earlier, with May RTC production up about 1.8% versus a 3.5% increase in April. Weekly RTC output for May is estimated with average weekly production at around 650 million pounds, a gain of 12 million pounds per week from May 2005 s weekly totals. The monthly totals released in the last Poultry Slaughter report showed May 2006 RTC production at 3.2 billion pounds, an increase of 1.35% when adjusted to a production-per-day basis. 16% 14% Weekly Broiler RTC Production 2 week moving average, % change prior year 7/29/06 forward forecast 12% 10% 8% percent 6% 4% 2% 0% -2% -4% % Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Estimates for June weekly average RTC production have been revised slightly lower, and currently look for a small decline of 0.2% from year-earlier, at close to 640 million pounds per week. If realized, June would actually have slightly smaller production levels than during May this year. And, it would mean that June 2006 weekly RTC production was down from June 2005 by more than 1 million pounds per week. For July RTC production, current estimates for slaughter and liveweights indicate the pounds produced could drop by more than 13 million pounds per week, or over 2% less than weekly averages in July The heat could reduce RTC production further with the possibility of lower bird weights as well as a likely increase in broiler mortality rate. For the next several months, on average, slaughter levels are forecast to dip 1.5% to 2.0% below yearearlier. However, the ongoing trend for heavier average liveweights and excellent live-to-carcass yields still bring projections for August weekly RTC production to less of a decline than those percentages, at about 1.5% lower relative to the prior year. The production cuts that we have estimated at 1.5% has been showing up in the egg sets data even though it doesn t perfectly transpose to a 1.5% cut in RTC production. We will watch the hatchery data, slaughter, and average liveweights closely to see if these numbers need to be revised. February EMI Analytics

12 Weekly Broiler Production Summary shaded area EMI Analytics projections 7/28/06 hatchery activity USDA 19-State slaughter and production 2 week moving average Eggs Chicks % Live Set % chg Placed % chg Slaughter chg Weight % chg Est. RTC % chg (000) (000) (000 hd) (lbs) (000 lbs) 2/18/06 215, % 3/11/06 175, % 4/29/06 165, % % 665, % 2/25/06 216, % 3/18/06 177, % 5/6/06 160, % % 645, % 3/4/06 216, % 3/25/06 176, % 5/13/06 159, % % 634, % 3/11/06 216, % 4/1/06 176, % 5/20/06 163, % % 653, % 3/18/06 213, % 4/8/06 173, % 5/27/06 167, % % 666, % 3/25/06 211, % 4/15/06 171, % 6/3/06 157, % % 626, % 4/1/06 213, % 4/22/06 174, % 6/10/06 154, % % 617, % 4/8/06 215, % 4/29/06 176, % 6/17/06 165, % % 652, % 4/15/06 214, % 5/6/06 176, % 6/24/06 165, % % 649, % 4/22/06 212, % 5/13/06 173, % 7/1/06 167, % % 654, % 4/29/06 210, % 5/20/06 171, % 7/8/06 153, % % 603, % 5/6/06 211, % 5/27/06 173, % 7/15/06 149, % % 594, % 5/13/06 213, % 6/3/06 175, % 7/22/06 161, % % 635, % 5/20/06 213, % 6/10/06 173, % 7/29/06 162, % % 631, % 5/27/06 213, % 6/17/06 174, % 8/5/06 160, % % 629, % 6/3/06 213, % 6/24/06 173, % 8/12/06 161, % % 631, % 6/10/06 214, % 7/1/06 175, % 8/19/06 163, % % 634, % 6/17/06 210, % 7/8/06 173, % 8/26/06 161, % % 633, % 6/24/06 210, % 7/15/06 174, % 9/2/06 161, % % 628, % 7/1/06 208, % 7/22/06 171, % 9/9/06 155, % % 606, % 7/8/06 210, % 7/29/06 174, % 9/16/06 156, % % 618, % 7/15/06 213, % 8/5/06 177, % 9/23/06 164, % % 654, % 7/22/06 213, % 8/12/06 176, % 9/30/06 164, % % 655, % 7/29/06 210, % 8/19/06 174, % 10/7/06 163, % % 657, % 8/5/06 209, % 8/26/06 173, % 10/14/06 164, % % 664, % 8/12/06 206, % 9/2/06 170, % 10/21/06 164, % % 667, % 8/19/06 209, % 9/9/06 172, % 10/28/06 163, % % 663, % 8/26/06 209, % 9/16/06 172, % 11/4/06 162, % % 661, % 9/2/06 207, % 9/23/06 170, % 11/11/06 161, % % 662, % 9/9/06 207, % 9/30/06 169, % 11/18/06 160, % % 657, % 9/16/06 200, % 10/7/06 163, % 11/25/06 143, % % 585, % 9/23/06 205, % 10/14/06 167, % 12/2/06 140, % % 573, % 9/30/06 202, % 10/21/06 165, % 12/9/06 158, % % 642, % 10/7/06 207, % 10/28/06 169, % 12/16/06 160, % % 645, % EMI Analytics, All Rights Reserved February EMI Analytics

13 Broiler Type Eggs Set & Chicks Placed USDA 19-state, thousand head 7/28/2006 Week Eggs Set Chicks Placed Ending % chg % chg 6/3/06 215, ,518-1% 178, ,435-2% 6/10/06 215, ,376-1% 178, ,898-2% 6/17/06 214, ,878-2% 178, ,713-2% 6/24/06 212, ,792-1% 178, ,344-3% 7/1/06 209, ,353-1% 178, ,548-2% 7/8/06 212, ,432-1% 176, ,633-2% 7/15/06 214, ,989 0% 175, ,123-1% 7/22/06 215, ,629-1% 172, ,223-1% 7/29/06 214, ,958-2% 175, ,332-1% 8/5/06 177, ,354 0% 8/12/06 last 3 weeks of placements 177, ,516 0% 8/19/06 projected from egg sets 176, ,288-1% Copyright EMI Analytics, All Rights Reserved 1.3 Monthly Price Forecast **Sample from July 2006** Overview Chicken supplies have been declining with continuing production cuts which show in the slaughter and freezer inventory reports. For the month of June, weekly reported slaughter averaged about 1% below year ago levels and July is expected to be at least 2% below year ago levels. This is the first time we have experienced sustained deliberate production cuts with the modern industry structure, and we expect the production cuts to last into next year. The US hasn t set a precedent in modern history for price movement that coincides with production cuts, which will likely cause some counter-seasonal or unusual price patterns in some products in the coming months. In general, we expect product movement to be similar to slightly higher than year-ago, drawing down inventories, and therefore expect most product prices to increase in the coming weeks. However, competing meat products in the retail sector have been priced at competitive levels in recent weeks, therefore we anticipate a short term slowdown in retail chicken movement for some items. July posted record-high temperatures in nearly every state, and above normal temperatures continue throughout the major broiler producing areas. We can expect to see a continuation of lower growth rates than in a normal summer, plus lighter than desired average liveweights at slaughter, higher mortality, and an increase in downgrades. Even with the use of cool cells and tunnel ventilation, it is difficult to reduce the temperature of the houses enough to prevent weight losses. It s likely that weights in some areas will February EMI Analytics

14 be a couple tenths per pound lower with the big bird deboning segment affected the most. This could cause production cuts to be even larger than anticipated for the next few weeks if temperatures continue to stay high. Current market conditions appear to be supportive of higher prices for most products. Retail movement in some areas has been a little slower than anticipated due to the above normal temperature. For most of the US both food service and fast food have been average, and the start of several fast-food and casual dining chicken promotions are expected to pull more white meat through August. Supplies of wings and leg quarters have been reported as clearing and slightly tight while breast meat products appear to be in sufficient supply. Plant to plant and further processing sales are increasing as lower production tightens supply, with some buyers reporting difficulty in locating preferred bird sizes or cuts. Whole Broilers and WOGs Markets for whole broilers and wogs are trading sideways to slightly higher in recent weeks, with EMI fresh whole broilers >= 3 pounds up slightly to 65.7 cents per pound for the last week of July, compared with 69.8 cents a year ago and up from a spring low of 50.5 cents per pound in late April. The average for EMI fresh wogs pounds didn t fully sustain its June runup, and has dropped 3.5 cents in the last two weeks to average 59.9 cents per pound. Although the week-to-week averages probably won t be steady, in general we expect whole broilers and wogs to climb 1-2 cents in August in response to declining supplies and increased featuring. EMI Whole Birds, >= 3 lbs, fresh cents/lb Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec avg For 8&9 piece marinated cut-up whole broilers average prices dipped as much as 2 cents in June, caused in large part to discounts paid by retailers for deli featuring. Industry sources report that some of the discounting was due to temporary backlogs in mid-size birds, and other discounting was associated with large-volume sales. It appears as though the majority of the discounting is over for now, and average prices are back up to slightly above 76 cents and will possibly carry a penny higher in August as February EMI Analytics

15 production cuts continue to affect the overall supply. White Meat White meat broiler markets have been moving generally higher over the past few weeks, with the exception of B/S breast meat which dropped noticeably. The EMI market average for fresh B/S breast meat peaked the week ended July 7 at $1.34, and dropped to $1.20 for the last week in July. While it is not unusual to see a small drop after the July 4th holiday, in mid July this year the supply of B/S breast meat was reported by some sources as adequate to heavy for many parts of the US, citing slower than expected retail movement as the primary cause. While our canvass of major sellers in the commodity market for this product failed to show persistent large volumes in excess of needs, it appears that in this case the limited surpluses were enough to create a negotiating point for buyers which erased part of the seasonal gains. EMI B/S Breast, Unsized, fresh cents/lb Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec avg Whatever the precise cause of the decline, we don t expect these conditions to be sustained into August. In addition to ongoing intentional production cuts, recent record-high temperatures in many parts of the US can be expected to further lower overall poultry production. The greatest impact from high temperatures can be expected in big bird deboning operations, which would reduce B/S breast meat. In the past few days, several major sellers into retail channels have told us they are actually short of B/S breast meat and may be forced to ship less than the desired quantities to some outlets. Going forward, we estimate that any surpluses are gradually disappearing, and look for EMI unsized B/S breast meat to approach $1.35 by late August--perhaps higher if the production cuts and heat impact are more than what is now anticipated. Upside risk to the market forecast could be considerable. With an unprecedented and sustained production cut underway plus production issues with heat, wholesale commodity markets could be very touchy. February EMI Analytics

16 Carrying into the fall and winter, we are not projecting the same degree of seasonal decline from summer peak to winter low in part because markets are not particularly high at the moment, but primarily due to production cuts which are set to last through the winter and into the spring of Tenders EMI tender markets had been trading at a discount to the other breast meat items but have made some improvements in the recent weeks. With breast meat supplies adequate, extra tenders became available. In addition, several large chain restaurants have reported lower 2nd quarter and early summer sales which would likely impact tender sales with the amount of product that moves through that channel. Many of these chains account their lower sales to the increased fuel prices. However, fast food has made up for some of that as they have reported an increasing amount of featuring of chicken products. cents/lb EMI Tenders, fresh Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec avg Although tenders failed to make a spring run-up, both tenders and 1.2 oz & down tenders are moving higher now. Reduced broiler production is probably the primary reason, but some foodservice outlets have started featuring chicken meals made from tenders, increasing the demand -side pull. Our forecast calls for EMI tenders to reach an average of $1.40 per pound in September, and then slide seasonally lower. EMI sized tenders 1.2 oz & down will briefly top $1.90 before heading lower in the fall. Wings Fresh whole wings have continued to move higher, gaining 2 cents last week to average 86.2 cents per pound. EMI jumbo wings were 3 cents higher at about 84.5 cents per pound, and drummette/midjoint wings were up over 5 cents to approach $1.02 per pound. February EMI Analytics

17 EMI Whole Wings, fresh cents/lb Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec avg The run-up in June in all wing product markets was highly unusual, and we attribute it to a bit of a shortfall in wings due to fewer broilers taken to slaughter wings are a piece-count item, and fewer birds killed mean fewer wings. Plus, we ve observed an uptick in downgrades and wing condemnations, which may be related to the unusually hot weather. Freezer inventories of wings have been reported lower than normal. Going forward, we believe wings may be close to topping out for now, perhaps carrying only 1-3 cents higher in the next few weeks. September usually sees a significant bump in wholesale markets, with staging for fall and winter holiday needs. But with wings already starting at relatively high levels, the market gain to September peaks are expected to be limited to roughly 5 cents from current levels. We then look for a slide in October and November to the 80-cent area for whole wings, followed by a seasonal increase in December and January. Dark Meat Market sentiment for both domestic and export trade for dark meat is starting to show signs of topping out and possibly softening. Retail featuring for dark meat cuts remains good, but high prices are starting to generate some push-back from export buyers. February EMI Analytics

18 EMI Leg Quarters, fresh cents/lb Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec avg For the week ending July 28 fresh EMI leg quarters averaged 37.6 cents per pound, which is up over 3 cents from a month ago. We are hearing few reports of negotiated sales above 39 cents, with most of the current activity closer to the cent point. With sales for future export starting to provide less price support, fresh wholesale leg quarters may carry 1-2 cents higher but are not likely to top 40 cents for a weekly average. By late September or October, fresh markets are expected to be easing lower. For the week ended July 28 EMI bulk frozen leg quarters averaged 24.8 cents per pound, up 9 cents from the start of June. The movement in frozen leg quarter markets tends to lag significantly behind fresh markets, as frozen export sales on average take 4-6 weeks to be completed and invoiced. We see that frozen product is closing the gap to fresh, and it appears as though excess supplies in freezers have been moved and product is clearing in a more current fashion. Therefore, although fresh markets are likely close to topping out, EMI average wholesale prices for frozen bulk leg quarters can be expected to carry 8-10 cents higher before topping out in the cent area in mid September. The primary driver of the current dark meat prices has been improved export demand, particularly to Russia. Some sellers tell us they booked export leg quarters for July at cents per pound, a few reports carrying into August at prices up to 42 cents, and others tell us they are completely booked carrying into September. However, we don t expect the average wholesale prices for EMI frozen leg quarters to match these reported sales--these bookings may represent the top 1/3 of invoiced prices as reported by EMI for frozen leg quarters. Continued booking for export will be needed to maintain these levels. Reports of export bookings in the low 40 s raises questions of pricing US leg quarters out of some markets. And, if any additional bird flu fears or other issues cloud the export picture, markets could lose part or all of the increases that have been made in the last few weeks. Dark meat markets are heavily influenced by exports, which generally remove 40%-45% of the dark broiler meat produced in the US. Trade in US dark meat can ebb and flow with the seasons, with supplies and prices of other meats, with political access issues, and with changes February EMI Analytics

19 in offerings or price from other supplying countries. International concern about bird flu and possible declines in poultry consumption will continue to complicate the dark meat forecasts. Assumptions All market and supply projections made by EMI (or any other source or analyst) involve setting basic assumptions for the duration of the forecast period. Most of the time, the assumptions for short-term forecasting are quite basic and include elements such as no major change in consumer demand during the forecast period, a stable macro-economic situation, no significant supply shock, no substantial change in the supply or price of competing proteins, and similar elements. If any of the basic assumptions are violated, the markets probably won t behave as predicted. In addition to the normal set of basic assumptions, we would like to clarify our thoughts relating to avian influenza. Like most other specialists, poultry analysts, and informed market participants, we assume that the Asian H5N1 bird flu that is spreading in many parts of the world will eventually come to North America, most likely carried by migratory waterfowl and shore birds. We believe it is highly likely that at some point in the next year this virus will be detected in wild birds most likely late in 2006 or spring 2007, and most likely found first in Alaska or western Canada. Our forecasts further assume that the virus will not infect commercial broiler or turkey production, but may be found in unprotected backyard flocks of poultry or ducks, or other domestic birds that are not protected with housing and biosecurity measures. We believe the Asian bird flu will remain a disease affecting birds, and only rarely will infect humans who have had close unprotected contact with infected birds. At this time, the most difficult area to consider is the impact on consumer demand for chicken when the Asian bird flu does approach the United States. We don t have any firm indication that chicken demand or purchasing patterns have changed to this point. Consumer surveys continue to indicate North American consumers have a high awareness of the issue but consider it to be an Asian and European problem. Most consumers appear to be correctly informed that it is a bird disease and they cannot become infected with the virus from properly handled and cooked poultry. From all of the above factors, the US demand impact of Asian bird flu is expected to be noticeable but not catastrophic, and recovery toward normal patterns could be expected to be relatively quick. But what consumers say in surveys doesn t always match up with actual behavior. Therefore, our price forecasts will continue to carry a significant risk related to the Asian bird flu. 1.4 Monthly Production Forecast **Sample from January 2005** Current EMI Analytics forecasts for 2006 look for continuation of expansion in broiler production through the first half of Market prices for breast meat and dark meat remained low for the first five months of 2006, putting many companies into an extended period of poor profitability. However, the months of burdensome supplies and poor profitability triggered a change in plans. It is now evident that the US broiler industry is starting an intentional and possibly sustained production cutback. In early May, several companies announced plans to reduce the number of birds to slightly below year-earlier levels beginning in early summer. We have adjusted the EMI Analytics forecasts for broiler slaughter to reflect a modest decline. As more data becomes available, projections will be adjusted. February EMI Analytics

20 US Broiler Supply & Disposition Beginning R-T-C Total Exports Ending Consumption Stocks Production Supply Stocks Total Per Capita Per Capita million lbs million lbs million lbs million lbs million lbs million lbs lbs carcass wt lbs retail wt 1 Q % 7,786 0% 8,549 0% 1,194-5% % 6,696 3% % % 2 Q % 8,275 0% 8,934-1% 1,169 3% % 7,085 1% % % 3 Q % 8,448 2% 9,127 0% 1,184-2% % 7,314 4% % % 4 Q % 8,240 4% 8,870 1% 1,384 13% % 6,854 1% % % % 32,749 2% 33,512 2% 4,931 2% % 27,948 2% % % 1 Q % 8,195 5% 8,827 3% 1,026-14% 625-5% 7,176 7% % % 2 Q % 8,492 3% 9,117 2% 1,010-14% % 7,314 3% % % 3 Q % 8,839 5% 9,632 6% 1,253 6% % 7,581 4% % % 4 Q % 8,537 4% 9,336 5% 1,489 8% % 7,110 4% % % % 34,063 4% 34,696 4% 4,778-3% % 29,181 4% % % 1 Q % 8,588 5% 9,325 6% 1,202 17% % 7,425 3% % % 2 Q % 8,934 5% 9,632 6% 1,351 34% 719-9% 7,562 3% % % 3 Q % 8,939 1% 9,658 0% 1,318 5% 775-3% 7,565 0% % % 4 Q % 8,904 4% 9,679 4% 1,290-13% % 7,442 5% % % % 35,365 4% 36,101 4% 5,161 8% % 29,994 3% % % 1 Q % 8,937 4% 9,884 6% 1,341 12% % 7,654 3% % % 2 Q % 9,129 2% 10,018 4% 1,302-4% % 7,920 5% % % 3 Q % 8,883-1% 9,680 0% 1,227-7% 716-8% 7,736 2% % % 4 Q % 8,780-1% 9,496-2% 1,420 10% % 7,298-2% % % % 35,730 1% 36,677 2% 5,290 3% % 30,609 2% % % 1 Q % 8,658-3% 9,436-5% 1,319-2% % 7,360-4% % % 2 Q % 9,156 0% 9,913-1% 1,324 2% 751-6% 7,838-1% % % 3 Q % 9,041 2% 9,792 1% 1,330 8% 725 1% 7,737 0% % % 4 Q % 9,227 5% 9,952 5% 1,479 4% 761-2% 7,712 6% % % % 36,082 1% 36,860 0% 5,452 3% 761-2% 30,647 0% % % shaded area EMI Analytics forecast EMI Analytics, All Rights Reserved Current first half 2006 production forecasts look for RTC production up about 2.9% compared with year earlier. Slaughter is projected up by more than 1.1%, and average liveweights about 1.5%. Production forecasts for mid 2006 forward remain in question due to low market prices. Domestic supplies of breast meat have outpaced demand, bringing record-low prices for bulk breast meat at the end of Although sellers now report increased bookings for export products, the international markets remain volatile. The combination of low breast meat prices and low dark meat prices has led to losses for many companies. We have incorporated modest slaughter declines into the EMI Analytics projections from July 2006 forward. It may well be that the decline turns out to be more substantial than now estimated, but past history has shown it is very difficult for the broiler industry to sustain an extended and significant contraction. We will monitor the hard-number data such as hatchery supply flock, chick placements, etc. and adjust the projections as the situation develops. February EMI Analytics

21 Quarterly RTC Broiler Production 8% percent change 6% 4% 2% 0% 5% 5% 5% 5% 4% 4% 2% 3% 0% 1% 4% 4% 2% 0% 2% 5% -2% 0% -1% -1% -4% -3% Current EMI Analytics forecasts for second half 2006 production look for slaughter to drop slightly below year-earlier beginning in July. RTC production is forecast down by 1% on a calendar basis compared with year-earlier (0.3% per slaughter day). Slaughter is projected down by 1.4% (0.6% per kill day). The reductions are expected to be in heavier-sized birds, and therefore the rate of increase in average liveweights will be smaller, with an average increase of 0.5%. But with average liveweights still above year-earlier, overall RTC production will remain relatively close to the same as during the last half of 2005, unless slaughter declines are more than now anticipated. Hatchery Supply Flock Pullet placements into the hatchery supply flock increased during the fourth quarter of 2005 relative to the same period of Pullet placements were up by 4.9% for the quarter. January and February 2006 continued the trend with pullet placements reported by USDA at a 5% increase compared with yearearlier. Placements dropped below year-ago in March and April, down 2% compared with 2005 s gain of 5% for the corresponding months. May numbers won t be available for another week, but we expect to see May placements down as well. Current estimates for hatchery supply flock activity start with the May report data from USDA on the size of the hatchery supply flock, which showed 55.3 million hens in place at the start of May, roughly 3.3% fewer hens than at the start of April We had expected to see signs that the supply flock would start to exceed year-ago due to increased pullet placements from late 2004 will are starting to enter the flock as active layers. It appears that the increase in new pullets has been offset by higher broiler breeder slaughter in April and May, delaying the impact of higher pullet placements. February EMI Analytics

22 57.5 Broiler Hatching Egg Flock FOM USDA million hens Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec For much of 2005 the supply flock was smaller than year-earlier, but overall production of hatching eggs remained higher than during the prior year, as changes in genetics and management led to superior productivity. Although the number of hens in the hatching egg flock averaged 0.6% smaller than year ago during 2005, the number of hatching eggs produced was reported as 1.5% higher. In addition, the number of chicks reported as hatched for slaughter in 2005 was up 1.5%. Therefore, a hatching egg flock that was smaller than year-ago was producing 1.5% more broiler chicks placed for slaughter. We had expected to see the productivity trend continue into early 2006, although not at quite as strong a rate. However, the data reported by USDA for egg production in recent months has been counter to that expectation. First quarter average hatching flock size was reported at 55.7 million hens, down 1.9% from year-earlier. Despite the smaller flock we were looking for 0.5% more hatching eggs to be produced. However, hatching egg production for that period was reported at a 2% decline relative to 2005, which puts hatching egg supplies back in the same range as during early Overall, the hatching egg flock is in a relatively tight position and under normal conditions US producers would be expected to hold existing flocks a bit longer than originally planned, to ensure a steady supply of hatching eggs. However, broiler production forecasts have come into question due to low market prices, which appear to be causing at least some producers to pull back on expansion plans and possibly even intentionally reduce output for the first time since at least Domestic supplies of breast meat have outpaced demand, bringing record-low prices for bulk breast meat. International markets are soft in many part of the world due to consumer concerns about highly pathogenic Avian Influenza, specifically the Asian H5N1 strain that has caused some human deaths. The soft export market pressured average EMI fresh leg quarter prices as low as the cent area early in Although markets are rising now with an uptick in export demand and have increased by over 10 cents per pound, the combination of low breast meat prices and low dark meat prices has led to losses for many companies, and if the losses are sustained more producers may choose to reduce output. February EMI Analytics