Americans are cutting back spending on chicken wings signifying a general downturn in purchasing.
As part of a WATT Poultry Chat interview, Mark Jordan, executive director of LEAP Market Analytics, examined chicken wing prices and industry profitability metrics to assess whether the U.S. economy is slipping into recession.
Austin Alonzo: It was great to see you at the Chicken Marketing Summit, where we talked about, among other things, growing certainty, the U.S. economy will slip into recession, or that it’s even in one right now. Mark, how will this impact the poultry economy?
Mark Jordan: It does feel, if you follow the talking heads, it feels like we’re sort of teetering either way.
There’s been some debate, and not to wade into it too much, but certainly feels like a slowdown is is upon us in here. And certainly, even though the chicken industry is involved in food production, and we think of food as being a kind of a safe haven, something that people will buy regardless, there is decision making there. Certainly, consumers restrained their spending on in areas. Chicken is not immune to that.
So I’m going to briefly look at a sort of an indicator and maybe using an indicator from the chicken industry to sort of think about economic activity in the form of wing demand.
We think of wings as a ubiquitous item in the restaurant sector. Of course, you can find it in grocery stores as well. And this is something that’s become a premium product within the chicken side. But still, we think of it as an affordable food item for most people. And, of course, the demand during the pandemic and the first year, year and a half was just very explosive.
Of course, if you look over a many years, multi decade, trend wing demand has been very strong or strengthened from many years ago, the way a lot of these restaurants have marketed that product and made it a center of the plate item. It’s sort of been a barometer in many ways for the health of the consumer. But in the last couple of quarters, the wing demand has really fallen off and indicative that there’s something unhealthy or something amiss further downstream in the value chain.
So I think this is certainly indicative that the economy is in a little bit of a bumpy patch or a rut. Wing demand, as you can see here, we had a little bit of a slump back in late 2013 to 2014 that was similar, but some very weak levels and threatening to fall into say, below normal territory over a three decade plus average. That’d be quite the big, quite an accomplishment and maybe accomplishment is the wrong word, but certainly suggesting something’s very amiss.
If you think about wing demand and it being solved, wing prices being solved. That has some spillover effects. That’s been a prominent item for chicken producers to market, you would say that the wings are struggling, that probably spills over into other categories and leads to weaker revenues and weaker margins.
Now, I’ve got kind of a long term profitability metric for integrators. We can look back over a couple of other time periods where we know that the economy was in something of a recession, like late 2001 into 2002, there was a bit of a bump, and then of course, the big one in 2008, and 2009.
Of course, we can see that the industry had a little bit of a margin struggle there. In 2002, and of course, 2008 was one of the worst years of the last few decades. 2009 showed a little bit of an improvement. There were some cost issues at play there as well, but certainly would suggests that the industry is looking at weaker margins.
We talk a lot about the integrator side of it. But I would argue that you get into this kind of environment, this this also speaks to probably more difficult conditions down the production chain at the farm level. There’s usually higher risk of a plant or two closing and a leaning down of things. That’s potentially, you know, is going to be troublesome for growers as well.
So, certainly it might be a little bit of a bumpy stretch ahead.
This transcript edited for length and clarity.