Chicken prices have climbed steadily over the past two years, especially rising steeply in 2014. The price of whole chicken as of July 27 stood at $1.13 per pound, which fell from $1.14 per pound the previous week. Current chicken prices are also below the 12-month moving average of $1.14 per pound.
In 2015, the avian flu hit the United States, infecting thousands of birds. It would be natural to think this would lead to a shortage of supply and an increase in price. But the United States is the largest poultry producer and the second largest poultry exporter in the world, according to the USDA (U.S. Department of Agriculture). The avian flu impacted the export sector the most. Countries such as Mexico, Canada, and China placed a partial to full ban on US chickens following the outbreak.
How this impacts restaurants
It may appear that the avian flu would cause an increase in chicken prices, but the opposite is happening. According to the USDA, the production of broiler chicken was not impacted. Since some countries have banned US broiler meat, there will thus be a surplus of broiler meat, which may lead to a drop in prices. Restaurants that serve chicken items may see a price relief due to this oversupply.
Chicken production is not as volatile as other proteins, because altering a chicken supply takes the least amount of time, only nine months. For beef, producers need 36 months to alter supply. For pork, producers need 20 months, according to Tyson Foods (TSN).
Restaurants that have been impacted by high beef prices recently may benefit by offering chicken items. Shake Shack (SHAK) recently launched a chicken sandwich, which is a good way to diversify its beef-heavy menu. Lower chicken prices are also positive for restaurants such as Popeye’s (PLKI) and KFC under the umbrella of Yum! Brands (YUM). The Consumer Discretionary Select Sector SPDR ETF (XLY), which holds 4% of McDonald’s (MCD), may also see a favorable impact.
The most important commodity for beef, pork, and chicken is corn. Read on to the next part of this series to know why.