Reference no: EM131369503

It has been a tough year in the poultry business, with supply outpacing demand and feed-grain prices rising substantially. But producers are hoping all that changes when the summer cook-out season starts. The seasonal upswing in chicken consumption, along with the anticipated jump in spot-market poultry prices, could bring some relief to producers whose profit margins have been slashed by surging corn and soybean-meal costs. Rising feed-grain prices, accelerated by the diversion of corn to make ethanol, have pushed up the cost of producing a live chicken by as much as 65 percent over the past two years.

Three factors make analysts more optimistic: Companies are cutting production, weekly egg-set numbers are declining (egg sets are fertile eggs placed in incubators), and prices are responding positively to the decreasing supply. The production slowdown is a response to the surge in feed-grain prices last fall. Profit margins at producers will not improve unless spot-market prices for chicken move up fast enough to cover costs paid for corn and soybean meal to feed chicken flocks.

Production cutbacks and seasonal demand have helped fuel a 20-cent increase in boneless, skinless breast-meat prices to $1.46 a pound. Prices are expected to reach at least $1.80 by summer 2008.

a. Use demand and supply analysis to illustrate the changes in chicken prices described in the above article.

b. Describe what has happened in the corn and soybean-meal markets and how that has influenced the chicken market.