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Profit tasting like chicken

Industry crows as affordability boosts demand

– Record-high prices for U.S. beef burgers and pork chops are helping to make 2014 the most profitable year ever for chicken producers.

Americans are buying more chicken as a cheaper alternative just as fast-food restaurants including Yum Brands and McDonald’s add new menu items such as wings and club sandwiches. The sales surge has sent wholesale prices to an all-time high, boosted profit for processors including Tyson Foods Inc., and left Ozark Mountain Poultry unable to keep up.

“We’re sold out,” said Ed Fryar, CEO of Ozark in Rogers, Arkansas, which processes 3 million pounds a week. “Last fall, when I looked at 2014, I didn’t anticipate demand being as strong as it is. This is going to be a really good year for the industry.”

With whole birds at U.S. supermarkets selling at half the per-pound cost of beef or pork, Americans will eat the most chicken in three years, while tight supply and high prices send red-meat demand to an all-time low, government data show.

In a year when farm income is set to drop because of crop surpluses, the U.S. Department of Agriculture says poultry farms will earn $203,500 on average, the most on records going back to 1996.

Whole chickens sold by farmers in Georgia, the biggest producing state, rose 9.2 percent since the end of 2012 to a record $1.07 a pound on April 9, USDA data show. Wholesale beef gained as much as 26 percent over that period.

Surging meat and dairy prices are helping to spur the fastest gain in consumer food costs since 2011, government data show. But while the rallies are boosting profit on all meats, chicken will be the “clear winner” this year, according to Tyson, the largest U.S. meat processor.

“It’s the cheapest protein, or less-expensive protein,” Donnie King, president of the company’s prepared-foods unit, told analysts on Feb. 27.

Even as demand increases, chicken supplies remain limited because producers were slower to expand output than they have during previous periods of improved profit.

Rising output may start to send prices lower as early as next month, said David Maloni, a principal at the American Restaurant Association in Sarasota, Florida.

Any output gains in the U.S. probably will be modest, keeping supplies tight and prices at the highest ever, the USDA said.

“The chicken industry has wanted to see this proof in higher prices before they were willing to increase supply,” said Will Sawyer, a vice president at Rabobank in New York.

Americans will eat 82.7 pounds per capita this year, the most since 2011, while red-meat consumption drops to 100.9 pounds, the lowest since at least 1970, the USDA projects.

“Clearly, chicken is going to be the go-to protein,” said Russell Whitman at commodity researcher Urner Barry in Toms River, N.J.

Restaurants are betting on the birds. McDonald’s, the world’s largest fast-food chain, brought chicken wings back to its menu late last year and is offering a bacon club sandwich with an option of chicken or beef.

Wendy’s introduced an Asian cashew-chicken salad in March, while Burger King Worldwide Inc., based in Miami, said last month it began selling a Spicy Original Chicken Sandwich in January, noting that poultry is “a growing piece of the market.”

Chick-fil-A surpassed KFC unit as the largest U.S. chicken-focused restaurant in 2012 and last year widened the gap with sales of $5 billion, according to food industry researcher Technomic Inc. in Chicago.

Meanwhile, Yum Brands has added fryers to its Pizza Huts to start home-delivery service of chicken wings, and the company opened a new sandwich restaurant in Arlington, Texas, called Super Chix.

Prospects for rising demand have been a boon for Tyson, which gets most of its sales and profit from chicken. The company will earn a record $1.02 billion in the current fiscal year and $1.07 billion in the next, according to the mean of estimates by six analysts surveyed by Bloomberg.

The shares are up 83 percent in the past 12 months, after touching a record $44.24 on April 1 in New York. Pilgrim’s Pride, the second-largest U.S. producer, has more than doubled.

From Subway Restaurants’ sandwich shops to Jack’s Family Restaurants, “they’re all pushing chicken,” said Dennis Maze, who has been a chicken farmer in Blount County, Alabama, for 41 years and produces about 500,000 pounds every month.

“We’re still putting it out at a reasonable price to the consumer. I’m looking for a very prosperous year in the chicken industry because of demand.”