By Tom Polansek and Jo Winterbottom
CHICAGO (Reuters) - U.S. meat producers are earning some of the highest profit margins in more than a decade, a bright spot for investors in agriculture, where grain farmers and trading companies are struggling to make money after years of massive oversupply.
Profits have soared and share prices are close to record highs for chicken processors such as Sanderson Farms and Pilgrim's Pride. With another bumper grain harvest expected this year, prices for feed should stay low. That, combined with robust demand for protein, could keep profits strong well into 2018.
Cheap grains are also boosting profits for companies that fatten up cattle before slaughter and even for the big meat processors, such as Cargill, which buy the animals but not the grain to feed them.
"Margins are excellent," Joe Sanderson, chief executive officer of Sanderson Farms, told Reuters last month. "Grain prices are similar to a year ago, and prices for our products are higher than they were a year ago."
It has been nearly 10 years since the corn and soybeans used in animal feed were so cheap for so long, with prices languishing under a glut of grain from four bumper harvests.
At the same time, U.S. per capita consumption of chicken is expected to hit a record high this year, according to National Chicken Council annual data that runs from 1965. Consumption of red meat is forecast to be the highest since 2009.
Consumers’ increasing appetite for protein and improvements in the U.S. economy have driven up meat consumption. Chicken sales have benefited because it is cheaper and considered healthier than beef and pork.
Soaring demand means retail prices have not fallen substantially, even though feed prices are low. Retail chicken prices in 2016 were just 11 cents off the 2014 high of $1.53 per pound. Prices hit highs for beef in 2015 and for pork in 2014, and they remain close to those levels.
But as beef prices have come down, consumers have bought more, according to Cargill Inc, one of the world’s largest suppliers of ground beef. The privately held company swung to an operating profit in the quarter ended May 31 from a loss a year ago on the back of strong demand for poultry and beef.
"If you have low grain prices for a sustained period of time, ultimately that translates into lower beef prices," Chief Financial Officer Marcel Smits told Reuters.
High profit margins in meat production stand in stark contrast to the fortunes of crop producers and grain merchants such as Archer Daniels Midland Co and Bunge Ltd. These companies are struggling to profit from international grain trading due to the global glut.