MBA 675Financial Research Group ProjectMatt, Minu,
DarcyButterball Fresh Turkey Shortage
Were you one of the lucky people that got to have a fresh turkey
for Thanksgiving last year? Many consumers that wanted a fresh
turkey for Thanksgiving in 2013 had to settle for a frozen one.
There were not enough fresh turkeys produced to meet the demand.
Butterball, the largest turkey producer in the United States, was
losing money because they could not meet the demand of their
customers during their busiest season of the year.Turkey
shortageDuring November of 2013 the turkey industry suffered a
fresh turkey production crisis. Butterball, which is the largest
vertically integrated turkey producer in the United States and
accounts for 20 percent of total turkey production in this country,
could only fill about half of their fresh turkey orders.
(Butterball) Butterball produces approximately 41 million turkeys
each year. In the US, during Thanksgiving, nearly 1 out of every 4
turkeys served is a Butterball turkey. (FoxNews) Butterball states
that their fresh turkeys had trouble gaining weight during the
production process. As CEO Rod Brenneman states, We dont have an
answer yet, when he was asked why the turkeys didnt plump up this
year, for whatever reason, they just didnt gain quite as well this
year. (Choi) He continued to say that he hoped it was solved by the
Christmas season. According to CNN Americans serve roughly 46
million turkeys on Thanksgiving, with 88% of all Americans feasting
on the bird. (Tannenbaum) The Butterball Turkey Talk Line opened in
1981 and handled more than 10,000 consumer calls that year. Today,
the line receives more than 100,000 callers during the Thanksgiving
season. (Butterball) The most common question: How to thaw a
turkey? (Horovitz) With the shortage of fresh turkeys this year,
this question will probably continue to be the most common question
asked on the talk line.When Butterball discovered it had a fresh
turkey shortage, it released this statement regarding the
shortage:Butterball and its retail partners have ample supply of
frozen whole turkeys of all sizes small, medium or large. While
there may be limited availability on some larger sizes of fresh
turkeys, Butterball has shipped 100 percent of customer orders of
frozen whole turkeys and products are in distribution across the
country. We experienced a decline in weight gains on some of our
farms causing a limited availability of large, fresh turkeys. While
we are continuing to evaluate all potential causes, we are working
to remedy the issue. We sincerely regret the inconvenience that
some of our customers have experienced as a result of this issue.
(Fox news)ProblemsBecause of Butterballs lack of fresh turkey
production, it can only ship half as many large, fresh never-frozen
turkeys to retailers as were ordered. Grocery stores were very
concerned because they were not able to meet the orders or needs of
their customers because they couldnt get the fresh turkeys they had
ordered from Butterball. Big Y, a supermarket chain based in
Springfield, Mass., said it had been notified by Butterball that
orders across the country for fresh 16-pound-plus turkeys were cut
by 50 percent. (Choi) The national average for a Thanksgiving
turkey is about 16 pounds.Butterball not only was losing money on
the fresh turkey side of the production, they were also losing
money on the frozen whole turkey side of the production. Turkey
production has declined in the United States, because prices are
lower. In 2012, approximately 5.97 billion pounds of turkey were
produced and by 2013, production was down to 5.86 billion.
Wholesale prices have also fallen and the USDA projects they will
be somewhere between $1.01 and $1.05 per pound by the end of 2013.
(Velsasco) Whole turkeys account for 20% to 25% of Butterballs
sales, the company says. (Horovitz)Butterball is also concerned
about losing its retail customers. The announcement of the orders
being cut by 50 percent caused many supermarkets to scramble. The
major supermarket chain, Big Y, had to give a press release stating
they would not take any more orders for the large fresh Butterball
turkeys. (Tannenbaum) Retailers would use the Butterball turkeys as
a loss leader in their grocery store so they could attract
customers to purchase not only the turkey but the other items for
their Thanksgiving meal such as potatoes, stuffing, cranberries,
pies, etc. During the months of November and December, retailers
basically make little profit from selling the turkeys, maybe only a
six percent markup. They are making their money on the accessory
items sold to go along with the turkey.For example:MonthsCost to
grocery StoresRetail PriceCost for 16 lb. TurkeyRetail for 16 lb.
TurkeyMarkup
November-December$.93-.95/lb.$.99/lb.$14.88-$15.20$15.846%
January-October$1.00/lb.$1.19-$1.29/lb.$16.00$19.04-$20.6422%
Turkey Production ProcessButterball is a vertically integrated
turkey producer. The company contracts directly with farmers to
grow turkeys before arranging transportation to pick them up and
deliver them to Butterball processing facilities. Butterball
operates a total of six processing plants spread across North
Carolina, Arkansas, Missouri, and Illinois. Butterballs largest
facility is 675,000 square feet in Mt. Olive, NC. The facility is
the equivalent of over eleven football fields. Turkey processors
have excelled in lowering their cost of production through these
large facilities. (Facts)Butterballs turkeys, fresh or frozen, are
all raised the same way. Once a hen lays a turkey egg, it takes
approximately four weeks for it to hatch. After it hatches, the
turkeys are sorted by their gender. Females are referred to as Hens
and males are called Toms. (Poultry) Sorting by gender allows the
turkey producer to better manage nutritional needs for the turkeys
and therefore maximize feeding efficiencies. This is a very
important step as two-thirds of the cost of producing a turkey
originates with feed ingredients. Hens take approximately 14 weeks
to reach their market weight while Toms take around 18 weeks to
finish. Hens are often processed and sold as whole birds. The
majority of Toms are processed into sausage, deli meats, and
tenderloins. (Raising)The decision of whether or not to market the
turkeys as fresh or frozen is mainly based on the timeframe in
which the birds are being slaughtered. As whole turkey consumption
is extremely seasonal, demand for fresh turkeys only comes around
from Thanksgiving through Christmas. Turkey producers like
Butterball must plan their fresh turkey needs early each spring in
order to have sufficient product for sale. They also must correctly
assess the risks associated with growing turkeys, whether it is
disease or rate of gain issues. Incorrectly forecasting fresh
turkey supply or demand can cost Butterball business at their
busiest time of year. Maintaining a supply of frozen turkeys is
much easier for Butterball to do as it is a year-round production
process. Once turkeys chosen for the frozen market have reached the
proper size and weight, they are slaughtered, blast-frozen at minus
30 degrees Fahrenheit, and stored for later shipment.
(Grandin)Production CostsAs previously mentioned, two-thirds of the
cost of producing a turkey is related to feed ingredients. From
2011 through 2013, corn, wheat, and soybean meal prices reached
all-time highs based on low producing crops and steady domestic
demand. Turkey producers did not see their own retail prices rise
enough to offset the feed increases. As a result, producers
attempted to right-size their flocks and reconfigure rations
accordingly. Anytime a ration is changed on an animal, risks are
taken that the animal may not eat as well and therefore not gain as
much weight. Butterball, like other turkey producers, had to
balance these risks from 2011 through 2013. It is likely that this
is the source of their turkey growth problem. Butterball likely
took on unnecessary price risks to squeeze more margin out of their
business and they did not pay off.Turkey DemandTurkey consumption
has been on the rise over the past thirty years, topping out in
1990 and leveling off since at sixteen pounds. (Statistics)
Within the US, consumers are recognizing the health benefits of
turkey as a low-fat, high protein source. While turkey demand has
always been seasonal, turkey consumption has started to spread out
as ground turkey, deli meat, and breast cuts have become more
popular options. Whole turkeys still comprise just below 25% of all
sales. (Turkey)Exports of turkeys have been on the rise as well,
increasing to 13% of total turkey production in 2012 compared to
1.2% in 1990. Popular destinations for exports include Mexico,
China, Hong Kong, and Canada. (Turkey)
CompetitionTurkey still lags the other three major meat options
for consumers in per capita consumption. Chicken, beef, and pork
lead the way in the meat market. Turkey accounted for only 8% of
total meat intake in the US in 2012. The other three meats are well
established as year round consumption options. Turkey producers and
associations have increased their marketing efforts recently to
promote it as a healthy and versatile option for consumers.
(Statistics)
Financial Predictions
According to the USDA predictions the total amount of pound that
is predicted to be produced this year is 6,055,000,000 which would
increase on 1.78% of production since 2013.
According to the USDA predictions the average price per pound of
turkey is going to decrease by 0.50 cent in 2014.
90% of sales by grocery stores occur in November & December
at a margin of 4% to 6% over
What the stores paid for the Turkeys.
10% of sales are spread over the remaining 10 months @ Margin of
19% to 29%.
ReferencesButterball, LLC. www.butterballcorp.com Choi, Candice,
Thanksgiving mystery: why are turkeys not getting fat? 19 November
2013.http://www.nbcnews.com/business/business-news/thanksgiving-mystery-why-are-turkeys-not-getting-fat-f2D116225432
Facts. Butterball Corporate. 29 June 2014.
http://www.butterballcorp.com/corporate-information/facts/
Fox News. Butterball warns of a turkey shortage.
http://www.foxnews.com/leisure/2013/11/18/butterball-warns-turkey-shortage/
Grandin, Temple. Turkey Farm and Processing Plant Tour. National
Turkey Federation. 29 June 2014. Youtube video.
http://youtu.be/852zxDEAR-Q
Horovitz, Bruce. USA Today. 18 November 2013. Butterball talks
turkey: Fewer fresh birds this
season.http://www.usatoday.com/story/money/business/2013/11/18/turkey-thanksgiving-butterball/3627093
Poultry Production Phases. United States Environmental
Protection Agency. 29 June 2014.
http://www.epa.gov/oecaagct/ag101/poultryphases.html#broiler
Raising Turkeys. National Turkey Federation. 29 June 2014.
http://www.eatturkey.com/content/raising-turkeys
Statistics. National Turkey Federation. 29 June 2014.
http://eatturkey.com/why-turkey/stats
Tannenbaum, Kiri, Butterball Announces Fresh Turkey Shortage
This Year, 18 November 2013.
Turkey Business. National Turkey Federation. 29 June 2014.
http://eatturkey.com/why-turkey/industry Velasco, Schuyler.
CSMonitor. 18 November 2013. Butterball:Dont panic, but theres a
turkey shortage.
http://www.scmonitor.com/Buisness/2013/1118/Butterball-Don-t-panic-but-there-s-a-turkey-shortage-video
Financial Predictions
http://www.ers.usda.gov/publications/ldpm-livestock,-dairy,-and-poultry-outlook/ldpm-231.aspx#.uqmvcydlwfyVideo:
http://abcnews.go.com/GMA/video/butterball-warns-fresh-turkey-shortage-20926214
