On BROILER PRODUCTION in the Western States

Ob?t4 On BROILER PRODUCTION in the Western States CHARLES M. FISCHER Station Bulletin 560 May 1957 Agricultural Experiment Station Oregon State Colle...
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Ob?t4 On BROILER PRODUCTION in the Western States CHARLES M. FISCHER

Station Bulletin 560 May 1957 Agricultural Experiment Station Oregon State College, Corvallis

A WESTERN REGIONAL RESEARCH PUBLICATION

Tt6féeice oj

tced

On BROILER PRODUCTION in the Western States Hatcheries may have contributed to changes in broiler production, but there is no evidence they were primarily responsible for sharp weekly fluctuations

CONTENTS

Conclusions and Recommendations

Why This Study Production Changes Studied Alternatives for Increasing Returns Hatcheries Have Unused Capacity

4 4 5 5

6

Influence of Various Practices on Broiler Procluction

9

ACKNOWLEDGMENTS

The author acknowledges the cooperation of the 103 broiler hatcheries in California, Utah, Washington, and Oregon who supplied the basic information for this study. Data were collected in California by Kenneth D. Naden and George A. Jackson, Jr.; in Utah by R. H. Anderson; in Washington by E. L. Baum; and in Oregon by the author. THIS STUDY

is a contribution to the Western Poultry Marketing Research Project and was conducted by Experiment Stations of the Western Region, cooperating with the Agricultural Marketing Service of the U. S. Department of Agriculture. Research for and publication of this report was supported in part by funds provided by the Research and Marketing Act of 1946. Under the procedure of cooperative publications, this report becomes in effect an identical publication of each of the cooperating agencies and is mailed under the frank and indicia of each. 2

Charles M. Fischer Assistant Agricultural Economist

of the important findings for the 12-month period studied are: SOME

sold. These hatcheries sold almost 94 per cent of their chicks on the basis of

¶ La r g e r hatcheries consistently achieved a higher degree of incubator utilization than did the smaller hatcheries. The largest group of hatcheries, on the average, utilized approximately 55 per cent of their incubator capacity, compared with approximately 39 per

advance orders.

cent for the smallest group. Average hatchability (of total eggs set) for 103 broiler hatcheries from 4 states was 74 per cent. Some hatcher-

half their chicks on credit sold approxi-

ies were achieving 82 per cent hatchability of total eggs set the year around.

were found to be very stablevarying only slightly between the quarter of

Large numbers of surplus light-

most sales, when 6.9 per cent were sold

breed cockerels are marketed each year during the summer months. There was

no evidence to indicate that this class of chicken contributes significantly to fluctuations in the production of broilers in the \iVest.

¶ Hatcherymen set close to orders. Slightly more than 91 per cent of all broiler chicks hatched were sold on the basis of advance orders. Of the remaining 9 per cent, 71 per cent were sold to

walk-in trade at the going price, with only 14 per cent being sold at a special price, destroyed, or raised by the hatcherymen. T The 17 largest hatcheries accounted

for 69 per cent of all broiler chicks

¶[ Slightly more than 28 per cent of

chicks sold were sold on credit. Hatcheries that sold more than half

all

their chicks on credit, sold almost three-

fourths of them to feed dealers, while the three groups which sold less than

mately three-fourths of them to producers.

¶ Out-of-state sales of broiler chicks

out-of-state, and the quarter of least sales when 6.1 per cent were sold.

Very few cancellations of orders for broiler chicks occurred. During the quarter in which the largest number of cancellations occurred, surplus chicks resulting from s u c h cancellations amounted to 1 per cent of all the broiler chicks placed that quarter. r Prices charged for broiler chicks

were stable. Of the 103 hatcheries in this survey, 77 charged the same price the entire 12 months, 20 hatcheries changed their price once during this pe-

riod, 5 hatcheries changed their price twice, and 1 hatchery changed its price three times. 3

Conclusions and Recommendations During the period of this study, certain hatchery practices may have contributed to changes in broiler produc-

cess of orders for broiler chicks' is potentially dangerous. Hatcheries could contribute to stabil-

tion, but there is no evidence that hatch-

ity in the broiler industry by selling

eries are primarily responsible for the sharp week-to-week fluctuations that

broiler chicks strictly on a cash basis. Broiler financing agencies should re-

frequently occur.

quire that a producer own his chicks before being granted credit for feed. Hatchability data indicate that many

In the long run it may be desirable for the hatchery industry to discourage oversetting by more than 5 per cent and encourage producers to place advance

hatcheryrnen may find it more profitable to divert part of the expenses in-

orders, even for small quantities of

curreci in attempting to expand broiler-

broiler chicks. Most hatcheries recognize that the practice of setting in cx-

chick sales to methods of increasing egg hatchability.

Most hatcherymen believe the greatest opportunity for increasing their returns is through increased sales volume.

Why This Study Sharp fluctuations in weekly broiler production has concerned the industry in the VVestern States in recent years. Similar fluctuations also have occurred in the large broiler-producing areas in the East and South. Seasonal or trend patterns are not primarily responsible for these week-to-week changes. In

Oregon, 30 per cent changes in the 4

weekly placement of broiler chicks are common. Fluctuations in output are

less for California than Oregon, but are still great enough to create problems for the industry. Production changes usually are reThe term broilers" as used in this report includes young chickens of the heavy breeds or heavy crosshreeds marketed from 2 to 5 pounds liveweight.

flected back

to the grower through changes would be an important way

changes in the price of broilers. Sometimes growers reap unexpected income,

but are forced at other times to sell flocks at considerable loss. Hatcherymen and feed dealers also are directly affected by these production changes. Processors often are forced to operate their plants at considerably less than

of decreasing waste and inefficiency in broiler marketing and increasing satisfaction among the members of the industry in the marketing process.

Some people believe broiler prices cause changes in broiler production. Recent research has shown, however, that no simple price comparison adethe desired volume. At other times, quately sums up the factors that motigreatly increased supplies result in vate producers to expand or contract glutted markets. Reducing the

broiler production.1

severity of

these

Production Changes Studied production

processorsto determine the influence of each on changes in production. Data were gathered for the 12month period, July 1, 1951 to June 30,

changes in the Western Region. The purpose was to determine some reasons for changes in output in the 1vVestern States, and to recommend facilities, information, or other steps which would promote production sta-

1952, from hatcheries and financing agencies. Two reports will be issued: one on hatchery operations. and one on financing operations and over-all effects of all agencies connected with the industry on changes in broiler pro-

bility and efficiency in marketing. Theprocedure followed in this study

d ucti on.

consisted of contacting the agencies most closely related to the broiler industryhatcheries, credit agencies, and

broiler hatcheries in the production of

During 195 1-52, the Agricultural

Experiment Stations of Washington, Oregon, California, and Utah began joint study of broiler

This report discusses the role of broilers.

Alternatives for Increasing Returns The primary thought of any busi- increasing the selling price of his chicks nessman is to make as high a return (provided that he does not reduce his as possible on his investment, labor, volume of sales proportionately), reand management. The return to the ducing the cost of producing chicks, or hatchery operator for his labor and the

increasing sales volume (provided that

use of his capital will depend on the he does not reduce his selling price margin between the cost of his chicks proportionately). Mosf hatcherymen believe the greatand the selling price, multiplied by sales volume. The hatcheryman can increase his return by accomplishing any

one of the following three practices: 1 Brandow, G. E., Learn, E. W., and Baker, R. "Broiler Production and Price Relationships." Progress Report No. 73. May, 1952. The PennsylvanLa State University, University Park, Penn. L.

est opportunity for increasing their re-

turn falls within the third alternative increasing sales volume. Since most hatcheries have considerable unused incubator capacity even during the peak

hatching season of the year (table 1),

Table 1. All Four Hatchery Groups Had Considerable Unused Incubator Capacity Throughout the Year

Hatchery capacity Thousands 500 to 1,000

to 499 100 to 199

200

0

to

99

Hatchcries Number 8

July thru

Sept.

Per cent 40.6

Capacity utilized5 April Jan. Oct. Entire thru thru thru year June March Dec. Per cent Per cent Per cent Per cent 41.9

72.2

63.6

54.6

60.6

50.8

19

40.1

39.4

63.2

28

30.6

27.0

53.9

50.8

41.1

46.9

49.7

39.3

42

32.0

28.7

48.3 57.9 61.7 37.1 36.4 All hatcheriesf * Includes all chicks hatched, broiler chicks, and flock replacement chicks. In some instances, due to incomplete information, less than 103 hatcheries are included.

hatcherymen are constantly striving to utilize this capacity. in general, every boost in sales they can realize increases

their return up to the point where the marginal cost of the last increment of chicks is equal to the selling price.

Hatcheries Have Unused Capacity Since all hatchery groups had considerable unused capacity even during the peak hatching season from January to June the pressure to increase sales

was great. Only 6 of 103 hatcheries claimed 100 per cent utilization during all 4 quarters. Many broiler hatcheries hatch light

breeds for laying-flock replacements during the January-June period. This partially explains the greater degree of utilization during the January-June period as compared with the July-December period. They hatch broiler chicks the year around, but during the

hatcheries.' Larger consistently achieved a

ious groups of

hatcheries

higher degree of utilization than the smaller hatcheries.

Three factors

sales on the basis of advance orders, credit sales, and broiler chick prices were examined to determine their effect on degree of utilization.

Hatcheries with a high degree of utilization actually sold a greater percentage of chicks on advance orders than did hatcheries with a low degree of utilization (table 2). Oversetting, therefore, was not the reason for better utilization. They were actually set-

late winter and spring months they ting more closely to orders than the also hatch chicks for flock replacement.

Slightly more than 78 per cent of all chicks hatched by the 103 hatcheries in this study were broiler chicks. There was considerable difference in the degree of utilization between var6

group with the low degree of utilization. 1 A separate analysis indicates that a highly significant relationship exists between hatchery capacity and degree of utilization. The coefficient of correlation between the two variables is .6667. F test indicates a highly signtficant relationship.

Hatcheries with a high degree of

found that selling price for broiler

utilization did not achieve this position by selling a large portion of their output on credit either. In table 3 note that the two hatchery groups sold practically the same percentage of their out-

chicks was approximately the same for both groups (table 4).

put on credit. Considering the entire year, the high-utilization group sold approximately 2 per cent more chicks on credit than did the low-utilization group. It is apparent, therefore, that the first group of hatcheries did not achieve its higher degree of utilization through substantially larger sales of chicks on credit, as compared with the second group.

No satisfactory explanation for the first group's higher degree of utilization was found. Better sales policy is a possible reason. The larger hatcheries advertise extensively, sending regular newsletters to their customers and anyone interested, and oftentimes employ a salesman who is constantly pushing sales as well as working as a fieldman

for the hatchery. Without question, these practices aid in increasing chick sales.

Hatcheries are eager to achieve corn-

Table 2. Hatcheries with the High Degree of Utilization Sold More Chicks on the Basis of Advance Orders

Sold on advance orders Degree of utilization Per cent 80 to

100

0 to 30

July thru Sept. Per cent

Oct.

April thru June

Jan. thru March

Per cent

Entire year Per cent

96.8

97.0

95.9

97.8

96.9

86.2

88.7

81.1

83.3

84.5

A third factor which might have an

effect on degree of utilization is the selling price of broiler chicks. Did hatcheries with the higher degree of utilization achieve their position by selling chicks at a lower price than the second group of hatcheries? It was

thru

Dec.

Per cent Per cent

plete or almost complete use of their facilities, since in most cases this would mean a reduced chick cost. Thus, many hatcheries spend considerable sums

each year for advertising, etc., to increase volume of sales.

Extent of variation in broiler chick

Table 3. Hatcheries with the High Degree of Utilization Sold Slightly More Chicks on Credit

Sold on credit Degree of utilization Per cent

July thru

Sept.

Oct.

thru

Dec.

Jan. thru March

April thru June

Per cent Per cent Per cent Per cent

Entire

year Per cent

80 to 100

25.5

27.6

35.7

35.9

31.8

0 to 30

32.0

35.2

25.6

29.2

29.9

7

Table 4. Broiler Chick Prices Same for Both Groups

Broiler Chick Prices* Degree of utilization Per cent 80 to 100

Sept. Cents

Cents

Jan. thru March Cents

17.8

16.9

17.5

July thru

Oct.

thru

Dec.

April thru June Cents

Entire year

17.5

17.4

Cents

17.2 16.9 17.2 17.4 17.3 0 to 30 * Price listed is the weighted average price, the weight being number of chicks sold.

output by quarters for the 103 hatcheries is shown in figure 1. Output varied from 80 per cent of average in the summer quarter to 119 per cent in the winter quarter. Variation in output by size of hatchery was similar (figure 2). All groups followed approximately the same pattern.

Hatcheries with an annual average

weekly output of less than 10,000 chicks had slightly greater variation than other hatchery groups. Output for

group IV varied from 73 per cent of the annual average in the fall quarter to 126 per cent in the spring. In contrast, output for group I varied from 86 per cent in the fall to 115 per cent in the spring.

Figure 1. Quarterly Variation in Total Broiler Chick Output. Per ceni

125-

20115110105 00

95 90 85 -

80 75 -

Summer

Quarter

Fall

Quarter

Winter

Quarter

Spring

Quarter

Figure 2. Quarterly Variation in Broiler Chick Output by Size of Hatchery. Per ceal

125 120 115

I tO 105

100

95 90

85 80

Annual Average Broiler Chick Output

9_

per week

Group I - 50,000 and over

75

- 30,000- 49,999 Groupm - 10,000- 29,999 Group]- 5,000- 9,999

Group

70

0-0 Group Summer

Quarter

Fall Qua rter

Winter

Quarter

-

0

-

4,999

Spring

Quarter

Influence of Various Practices on Broiler Production It would be helpful to know if con- much longer period than 1 year. Due stant pressure on hatchery operators to limitations of funds, it was not posto sell more chicks causes them to fol- sible to gather data on all agencies low practices that contribute to fluctua- simultaneously or for a period greater tions in broiler production. The rethan 1 year. Thus, in this report, the mainder of this report will be devoted independent effects of hatcheries are to a discussion of the influence of cer- not completely isolated from the actain factors on changes in broiler pro- tions of processors, producers, and duction.

It is recognized that to isolate the independent effects of the actions of any one agency or group, all possible influences on broiler production must be considered simultaneously and for a

feed dealers.

The report on the second phase of this study covers financing operations, and the overall effects of all agencies connected with the industry on changes in broiler production. 9

Hatcheries are attempting to make the supply of hatching eggs more uniform by starting chicks for hatching egg flocks at different times a year.

1. Hatchery Egg Supply Surpluses and shortages of broiler are arriving in quantity and of the hatching eggs occur during certain necessary size. He has to determine the periods of the year. While they influ- number of chicks his customers will ence the supply of chicks, they are of want 1 year from now, determine how a seasonal nature and (10 not contrib- many hens will be needed to produce ute to erratic changes in broiler pro- the necessary quantity of eggs, locate duction. Shortages occur during the producers who arc interested in prolate summer (July, August, Septern- ducing hatching eggs, and get the her) while surpluses occur during the chicks to them. Thus the hatcheryman sets up a fall and winter months (October, November, December, January, Febru- "chain reaction" which is hard to stop ary). The supply of hatching eggs em- once it is started. If he overestimates phasizes the very important role of the the number of chicks his customers will want 12 months later, he may have hatcheryman in broiler production. A hatcheryman must determine a to offer concessions to move them. He year in advance the approximate num- cannot, however, afford to do this over

ber of broiler chicks he will be able an extended period of time. After 2 to sell 12 months later at the going or 3 weeks of reducing his price to sell price. That is, in February 1956 he has to determine the approximate number

of chicks his customers will want in February 1957. This decision must be made early since he must arrange for producers to keep breeding flocks for himOne year elapses from the time he makes this decision until hatching eggs 10

his chicks, he will begin to reduce the number of eggs set. This means that his hatching-egg producers will be forced to sell a portion of their eggs as table eggs. Many times this means that the producer receives less for his eggs than it cost to produce them. If this condition lasts over an extended

period, the producer in all probability will not keep a hatching-egg flock the following year.

Thus, if the hatcheryman is overoptimistic, he may lose many of his hatching-egg producers. If he is overpessimistic he may forego a considerable increase in his return by not having enough chicks to satisfy demand. Hatcherymen under pressure

Once the eggs start coming from the

producers, the hatcheryman is under considerable pressure. If the demand for broiler chicks declines he is forced to make a difficult decision. Should he continue to set all the eggs his hatching-egg producers bring him and take a chance, gambling that the demand will pick up? Or should be refuse to accept

his producers' eggs, forcing them to sell the surplus as table eggs? There is always the possibility that he may be

able to

sell

the surplus to another

hatchery, but generally when one hatch-

eggs, other hatcheries are having the he must decide whether to accept the surplus eggs and same trouble. So

set them, buy them as hatching eggs and sell them at a loss as table eggs, or refuse to take them. Of the 103 hatcheries studied in the 4 states, none had a written contract with their hatching-egg producers. Oral agreement was the only understanding between the hatchery and the producer. Thus when a surplus of hatching eggs developed, hatcheries were not legally

bound to take them. The temptation, however, to set some of the surplus eggs was strong. Ten hatcheries (table 6) gave as one of the reasons for setting in excess of orders the fact that

eggs were available. This meant increased hatchings, not covered by orders. It can be seen that surplus eggs could easily contribute to production fluctuations. Most hatcheries, however, stated they

refused to buy surplus eggs during

ery is having difficulty with surplus periods of low broiler chick demand. Hatching-egg producers were forced to sell these surplus eggs as table eggs.

Uniform egg supply Although shortages of hatching eggs still occur, this situation is being remedied. Hatcheries are attempting to make the supply of hatching eggs more

uniform by starting chicks for hatching egg flocks at different times a year

at least twice and in some cases as many as four times a year. In time this procedure should help reduce shortages

that now occur during the summer. These shortages of hatching eggs force

a reduction in the number of broilers raised, thereby contributing to production fluctuations of the seasonal or Careful handling of hatching eggs is essential to insure high hatchability.

predictable type. During the period of this study, California hatcheries purchased almost 11 11

per cent of their broiler hatching eggs from out-of-state sources. This compares with 2 per cent for Utah hatch-

for Washington hatcheries, and .3 per cent for Oregon cries, .9 per cent

hatcheries.

2. Egg Settings Hatcherymen state that oversetting is necessary at times because many broiler producers will not place ad-

them.

Of the 103 hatcheries interviewed, 53 stated that in hatching broiler chicks

vance orders. The producer decides he

they set to orders the year around,

wants chicks on a certain day, starts his brooder stove, and begins looking

while the other 50 stated they overset during certain seasons (table 5).

Most oversetting occurred during for chicks. If one hatchery cannot supply him, he contacts others until he winter and spring months. From July finds the quantity of chicks he desires. to December, hatcheries set close to Many times such producers do not orders. Hatcherymen listed 10 items which care about the breed or strain. They simply want chicks. While most of this

influenced them in determining whether

type producer want only from 50 to 100 chicks each, the total number of

to set strictly to orders or to overset (table 6). They gave greatest consid-

chicks taken by the group can be large during certain seasons. To be successful at this practice of oversetting, a hatcheryman must carefully consider many factors, including weather, and have a certain amount of luck, for it is difficult to gauge the

demand from this class of producer. If the hatcheryman guesses correctly,

eration to broiler prices. Tone of

market (which includes ratio of orders on books compared with the same

period a year ago, calls, dealer interest) was the second most important reason for oversetting, with season of the year listed as third.

Note that broiler placements are seldom considered in deciding whether

if he does not, he may be forced to

or not to overset. Storage stocks of fryers and hatching egg prices also

brood some surplus chicks or destroy

rate low'.

he may increase his sales volume. But

Table 5. Hatcheries Almost Evenly Divided with Respect to Policy on Egg Settings

State

Do you set only on orders? Yes

No

34

26

Oregon

9

14

Washington

9

6

California

Utah

4

Total 12

53

50

Table 6. Hatcherymen Consider Broiler Price Most Important in Determining Whether to Overset

Number of times mentioned*

Item Price of broilers and fryers

24

Tone of market (includes orders on books, calls, dealer interest) Season (and weather) Desire for full production Available eggs Past history (set approximately same number of eggs as same period last year) Demand for layers Broiler placement report Storage stocks of fryers

16 15 11

10 7

5 3

Price of eggs

* Many hatcheries gave several reasons for setting in excess of orders.

3. Hatchability Average hatchability for 103 hatcheries varied almost 9 per cent between the quarter with the highest hatchabil-

between the five groups is not signifi-

cant. There was no relation between size of hatchery and hatchability.

ity and the quarter with the lowest The goal of a hatcheryman produc(table 7). Tf egg settings were held ing broiler chicks should be a miniconstant from season to season, the mum of 82 per cent hatchability of Table 7. Average Hatchability Approximately Same for All Groups

Broiler chick output per week (annual average) Number 50,000 and over

July thru

Oct.

Hatchcries Number

Sept. Per Cent

Per Cent

6

67.9

68.2

thru

Dec.

April thru Average June for year Per Cent Per Cent Per Cent Jan. thru March 77.2

77.7

73.3

30,000 to 49,999

Il

72.8

73.7

78.8

78.1

76.3

10,000 to 29,999

29

67.5

69.6

77.0

77.7

73.5

5,000

to 9,999

17

70.4

72.3

77.8

77.6

74.9

0

to 4,999

35

70.8

73.9

78.8

77.8

75.8

69.0

69.9

77.5

77.8

74.1

Average-all groups

number of chicks hatched would vary greatly due to changes in hatchability.1 Hatcherymen are, however, fully aware

of these changes in hatchability and compensate by increasing number of eggs set during seasons of low hatchability. The difference in hatchability 1

In this report, hatchability refers to percent-

age of Nc. 1 salable chicks hatched from

set.

total eggs

total eggs set every month of the year.

This is not an impossible goal, since several hatcheries reported hatchabi lity

of 82 to 85 per cent of total eggs set every month of the year. It is apparent from table 7 that all groups must improve considerably to realize this goal.

Hatchability during the two periods 13

Table 8. Oregon Hatcheries Had Highest Hatchability

State

Hatchcries Number

April Jan. Average thru thru for year March June Sept. Dec. Per cent Per cent Per cent Per cent Per cent

July thru

Oct.

thru

Oregon

20

76.8

78.8

80.3

80.2

79.2

California

58

68.2

68.8

77.4

77.7

73.6

76.8

67.6

Washington

Utah

15

73.3

76.4

78.2

78.1

5

61.5

65.2

70.0

70.3

July through December and January and 8, however, hatcherymen could inthrough June was found to differ sig- crease their returns considerably by nificantly. Principal reason for this is improving hatchability. If a hatchery the decrease in fertility of hatching-egg flocks during summer and fall months. Decrease in fertility is caused by

higher temperatures during summer and early fall, and by length of time hens have been in production and males have been with the breeding flocks. A high percentage of hens pro-

with average hatchability of 74 per cent increased its hatchability to 82 per cent,

it could reduce the egg cost per chick by 1 cent (assuming an egg cost of 7 cents or 84 cents per dozen). This would mean an increase in income of $1,000 for every 100,000 broiler chicks

sold. As the cost of hatching eggs

ducing hatching eggs in the fall has rises above 84 cents per dozen, egg been in production from 6 to 12 cost per chick is reduced even more. It months. As males and females grow may be more profitable for many hatcherymen to divert part of the exolder, their fertility steadily declines. Many hatcherymen place consider- penses incurred in attempting to expand sales volume to methods of inable emphasis on increasing sales volume to increase their return on invest-

creasing hatchability.

ment and labor. As shown in tables 7

4. Light-Breed Cockerel Sales raised. Do these light-breed cockerels contribute to fluctuations in broiler production? Light-breed cockerels are not a meattype chicken. Most commercial broilbreed chicks; so the total number of ers are sold at approximately 3 pounds, light-breed cockerels sold during the but light-breed cocicerels must be sold study period was considerably greater when they reach 2 to 2 pounds for than 3 million. It is entirely possible the grower to realize a profit. Beyond that sales of light-breed cockerels dur- this weight, they are inefficient converting the 12-month period amounted to ers of feed into meat. In addition, their 15 to 20 per cent of the total number flesh becomes tough when they reach of commercial broilers and fryers fryer weights.

During the 12-month period of this study, approximately 3 million lightbreed cockerels were sold by the 103 hatcheries surveyed. This does not include hatcheries which hatch only light-

14

Approximately 3/2 million light-breed cockerels were sold by the 103 hatcheries studied.

Most light-breed cockerels are sold

centage of these cockerels is consumed

by hatcheries from January through May. They are marketed from April through August. When cut-up and tray-packed, they are hard to distin-

by the grower or sold to the locker

guish from regular meat-type broilers. Those sold in this fashion compete directly with meat-type broilers. It is

the production of broilers in the West, or that they are marketed in sufficient numbers at any one time to glut marketing channels.

believed, however, that a large per-

trade. There was no evidence that this type of chicken contributes to fluctuations in

5. Disposition of Broiler Chicks Hatcherymen set close to advance

orders during the 12-month period

Percentage of broiler chicks sold on the basis

of advance orders varied

studied (table 9). Of all broiler chicks from quarter to quarter (table 10). hatched by 103 hatcheries, 91 per cent Fewer chicks were sold on the basis were sold on the basis of advance or- of advance orders during the winter ders. They overset to the extent of ap- quarter than during any other quarter. proximately 9 per cent. This amount is This was true for all five groups of

not serious in view of the fact that hatcheries. The spring quarter was

only slightly better. Hatcherymen usually expect an intrade at the going price, with only 1.4 per cent of all broiler chicks hatched crease in demand for broiler chicks either sold at a special price, destroyed, from walk-in trade during the winter or raised by hatcherymen as a last re- and spring quarters and increase persort. Part of the total overset is due centage of overset accordingly. During to cancellations of advance orders. the period under study, most of this most of the overset was sold to walk-in

Cancellations, however, totaled only

slightly more than - of 1 per cent of total broiler chicks hatched during the 12-month period.

overset was absorbed by the broiler industry at the going price. There were, however, slight increases in certain cases in the per cent sold at a spe15

Table 9. Disposition of Broiler Chicks by Annual Average Output per Week, July 1,1951 to June 30, 1952 Broiler

roup

chick output per week (annual average) Number

Sold on basis of advance

Sold to walk-in

trade at Hatchgoing price* cries orders Number Per cent Per cent

Sold to walk-in

Raised with

own trade at special equipDcstroyed mentt pricet Per cent Per cent Per cent

I

50,000 and over

6

95.5

3.9

.01

0

.6

II II I II/

30,000 to 49,999

11

89.2

9.3

.02

1.3

.2

10,000 to 29,999

30

85.2

12.8

.4

1.5

.1

5,000 to 9,999

17

89.9

7.2

1.6

1.1

.2

0 to 4,999

39

78.2

15.7

1.0

5.0

.1

103

91.1

7.5

.2

.8

.4

V

A

gr oups

"Walk-in" refers to o ders for chicks after eggs are set. t Special price' refers to chicks sold at discount due to oversupply or other factors. Forced production- -would not have been raised if hatcheryrnan could have sold tl,eiii.

cial price and per cent raised by hatcherymen. The latter classidcation refers

to forced production of broilers-that is, broilers that would not have been raised by hatcherymen if it were not for the fact that they had to dispose of some surplus chicks and chose to raise them rather than to cut prices or destroy them. Hatcheries which had the highest an-

nual average output sold a much

higher percentage of their chicks on the basis of advance orders thaii the other groups, particularly the smallest

size group. Group V sold fewest on advance orders, but since it sold only 4.3 per cent of the total broiler chicks during the 12-month period (table 11), its lower sales based on advance orders is not of great importance. The

Table 10. Largest Hatcheries Sold the Most Chicks on Basis of Advance Orders

Group

Broiler chick output per week (annual average) Number 50,000 and over

Hatcheries

July thru

Sept.

Sold on Advance Orders April Jan. Oct. thru thru thru March June Dec.

Average for year

Number Per cent Per cent Per cent Per cent Per cent 6

97.4

97.5

93.3

95.0

95.5

II

30,000 to 49,999

11

91.6

91.7

87.2

88.0

89.2

III

10,000 to 29,999

30

89.0

90.1

81.7

82.8

85.2

Iv

5,000 to 9,999

17

93.8

88.6

88.1

89.5

89.9

Oto 4,999

39

81.8

82.9

74.5

76.S

78.2

103

93.6

93.9

88.6

89.9

91.1

V All groups 16

17 largest hatcheries (groups I and II)

sold 69 per cent of all broiler chicks sold during the period of the study

with 93.8 per cent of them sold on advance orders. Of the 103 hatcheries, 32 hatcheries

sold 100 per cent of their chicks on the basis of advance orders during all 4 quarters. Another 14 hatcheries sold from 90 to 100 per cent of their chicks on advance orders. It is known that most medium-and

of their chicks on advance orders had somewhat less variation in output than hatcheries which sold less than 50 per cent on advance orders (figure 3). Washington had the highest percent-

age of chick sales on advance orders, followed closely by California (table 13). Sold on advance orders

The fact that 91 per cent of all chicks sold during the 12-month period

were sold on the basis of advance orders indicates fairly conclusively that this factor did not contribute signifion the basis of advance orders able cantly to changes in broiler production to attract advance orders from produc- during this particular period. The practice of oversetting, howers by offering credit? large-size broiler growers usually order chicks in advance. Were the hatcheries that sold a large portion of their chicks

Table 11. The 47 Largest Hatcheries Sold 90 Per Cent of All Broiler Chicks

Group

Broiler chick output per week (annual average) Number

Hatcheries Number

Total broiler chicks sold

Per cent

50,000 and over

6

50.2

II III

30,000 to 49,999

11

19.1

10,000 to 29,999

30

20,7

Iv

5,000 to 9,999

17

5.7

0 to 4,999

39

4,3

103

100.0

V All

roups

The group of hatcheries which sold from 91 to 100 per cent of their chicks on advance orders sold slightly more than one-third of their chicks on credit (table 12). The group which sold less

ever, may cause trouble in the future if

the hatchery industry allows itself to overemphasize the returns from walkin trade. At times hatcherymen place themselves in a precarious position and

stand to lose considerably if the exvance orders, sold only 2 per cent on pected walk-in demand does not decredit. The latter evidently specialized velop. In the long run it would perin filling small spot orders on a cash haps be wiser for the industry to disbasis, while the former apparently courage oversetting by more than 5 per specialized in filling large advance or- cent and encourage producers to place ders with credit being given rather advance orders, even for small quan-

than 50 per cent on the basis of ad-

freely.

tities of broiler chicks.

Hatcheries which sold 100 per cent 17

Table 12. Credit Sales Were Highest for Hatcheries Selling 91 to 100 Per Cent of their Chicks on Basis of Advance Orders Sales on basis of advance orders Per cent to 100

91

Sold on Credit

July thru

Dec.

March

Number

Sept. Per cent

April thru June

Per cent

Per cent

Per cent

Per cent

46

31.9

31.3

35.9

36.5

34.3

Hatchcries

Oct.

Jan.

thru

thru

Average for year

76 to 90 51 to 75

26

13.9

14.2

15.4

18.4

15.8

20

15.6

18.5

14.5

15.5

15.7

0 to 50

11

2.2

2.3

1.8

2.2

2.1

It may be advisable for all broiler

in advance.

hatcheries in an area to develop a program designed to encourage producers

Producers will soon learn to order in advance if they are unable to get

to order their broiler chicks 4 weeks

chicks when they want them.

Figure 3. Quarterly Variation in Broiler Chick Output for Two Types of Hatcheries. Per cent 130 125

120

Ho/cheries which

115

sold /00

HO

of Their

Broiler Chicks on odvance order.

105

100

95

90 85

80

:

75

70 65

Summer

Quarter 18

Fall

Quarter

Hatcheries which sold from 0 - 50 of their Broiler Chicks on odvonce order. Winter Quarter

Spring

Quarter

Table 13. Washington and California Had Largest Sales of Chicks on Basis of Advance Orders

State

Hatchcries Number

Sold on basis of advance

15

92.3

California

60

Utah

trade at going

orders price Per cent Per cent

Washington Oregon

Sold to walk-in

Sold to walk-in

trade at special price

Raised with own equipment

Per cent Per cent

Dc-

stroyed Per cent

7.6

08

0

0

91.8

6.7

.21

.91

.43

23

82.2

16.4

.58

.68

.15

5

81.7

15.3

.19

2.64

.19

6. Per Cent Sold on Credit Do hatcheries contribute to fluctuations in broiler production through easy credit (sometimes known as

Many industry people have taken the attitude that broiler chick sales should be on a cash basis only. These

"loose financing")? Wholesale grant-

people believe that a producer who does not own his chicks does not have suffi-

repercussions in a short time. It is an old axiom in the money-lending business that a lender's money is safe in a borrower's hands as long as the bor-

cient equity in his business. If a producer buys his chicks, feed, fuel, and medicine on credit, his investment per flock of broilers is actually very small. If he pays cash for his chicks, how-

ing of credit could lead to serious

rower stands to lose more than the lender, if he makes a mistake. In too many cases in the broiler industry in the West, the borrower has little to lose if he makes a mistake. Many broiler growers have little equity in their operation. They obtain chicks, feed,

fuel, and often their

broiler equipment on credit. In the past, some broiler areas have expanded rapidly, primarily through easy financing. During periods of low prices, producers with low equity are vulnerable

and can be badly hurt, if not bankrupted. It is therefore as much the responsibility of the hatchery industry as any other segment of the broiler industry to make certain that the growth

of the broiler industry in any partiular area is orderly and does not mushroom through easy credit.

ever, he has an equity of approximately 20 per cent in each flock. The price of

broilers could drop to approximately 20 cents per pound and he would still

be able to pay his feed bill in full.1 Debt not incurred

While in this case he would not be receiving anything for his labor, he a1 least would not have incurred a debt

which must be paid by succeeding flocks of broilers or by other farm enterprises. In this survey of 103 hatcheries,.

28.5 per cent of all broiler chicks sold or better than 1 chick out of every 4r were financed (table 14). Group I, hatcheries with the largest -

1

Assuming a producer has a feed conversion

ratio of 3.0 or below and that the price of feed does not rise above $d.50 per hundredweight.

19

Table 14. Largest Hatcheries Sold More Chicks on Credit

Broiler

Group

chick output per week (annual average) Number

July Hatchthru cries Sept. Number Per Cent

Jan. thru Dec. March Per cent Per cent Oct.

thru

April thru June Per cent

Average for year

Per cent

I

50,000and over

6

26.1

28.4

33.7

34.3

31.3

III

30,000 to 49,999

11

23.3

23.9

27.2

25.5

25,2

III

10,000 to 29,999

30

30.9

30.6

27.1

29.7

29.3

IV

5,000 to 9,999

17

21.1

25.0

28.2

23.2

24.5

0 to 4,999

39

11.0

13.1

9.6

11.5

11.2

103

25.6

27.3

29.8

29.9

28.5

V

All

groups

annual average output per week, sold

doubtful if credit sales contributed sig-

the highest percentage of chicks on nificantly to erratic fluctuations in credit of any of the 5 groups, with broiler production. Hatcheries tend to Group V having the lowest number of chicks sold on credit. Credit sales varied

The percentage of chicks sold on credit for all hatcheries varied from 25.6 per cent during the summer quarter to 29.9 per cent in the spring quar-

ter, a total variation of 4.3 per cent. While the percentage sold on credit was high for all four quarters, it is

stagger granting of credit over a period

of time. This statement is borne out by the slight variation between quarters in the per cent of chicks sold on credit.

Feed dealers are the largest credit purchasers of chicks. The group of hatcheries which sold 51 to 100 per cent of their chicks on credit, sold al-

most three-fourths of them to feed dealers, while the three groups which

Table 15. Proportion of Broiler Chicks Sold to Producers, Feed Dealers, and other Retail Outlets by Credit Sales

Sold on

credit Per cent 51-100

Hatcheries Number 9

Sold to producers

Sold to feed dealers

Per cent

Per cent

Sold to

other retail outlets Per cent

22.2

73.2

4.6 2.8

26-50

20

75.4

21.8

1-25

21

69.6

29.8

.6

0

53

77.6

19.3

3.1

63.7

33.6

2.7

All groups

20

Table 16. Washington and California Led in Sales of Chicks on Credit

State

Ha Lcher ies

Nw riber \\Tashington

July thru

Sept.

Oct.

thru Dec.

Per cent Per cent

April thru thru March June Per cent Per cent Jan.

Average for year

Per cent

5

36.0

35.3

29.3

35.4

33.4

California

60

25.4

27.3

30.8

30,9

29.0

Oregon

23

17.2

18.0

16.0

16.2

16.7

5

4.0

3.6

4.1

4.0

4.0

Utah

sold less than 50 per cent of their Washington hatcheries sold approxichicks on credit,

sold approximately three-fourths of them to producers

mately one-third of all broiler chicks

(table 15). Many of these credit purchases by feed dealers are on a sharethe-risk plan, whereby the hatcheryman gets paid in full if his chicks

credit. California hatcheries sold 29

when sold as fryers break even or realize a profit. If there is a loss, the feed dealer and hatcheryman share the loss according to each one's investment.

Hatcheries in Washington sold the highest percentage of chicks on credit, with California second (table 16).

hatched (luring the 12-month period on

per cent on credit, while Oregon and Utah hatcheries sold only 16.7 per cent and 4 per cent on credit, respectively.

Sales of chicks remained relatively constant in

each state during the period studied. There was an increase in credit sales in California during the January-June period, but this was not reflected in the other three states.

Table 17. Sales of Chicks to Out-of-State Buyers Did Not Vary Greatly by Quarters

Broiler

Group

Chick output per week (annual average) Number

July Hatchthru cries Sept. Number Per cent

Oct.

thru

Dec.

Per cent

Jan. thru

March

Apr.

thru

June

Average for year

Per cent Per cent Per cent

I

50,000 and over

TI

30,000to49,999

11

2.2

2.1

2.6

2.5

2.4

III

10,000 to 29,999

30

14.0

15.4

13.0

13.2

13.8

IV

5,000 to 9,999

17

26.0

23.7

16.8

18.3

20.6

V All

0 to 4,999

39

2.6

2.3

6.4

5.5

4.7

6.9

6.8

6.3

6.1.

6.5

groups

6

3.7

3.8

3.7

3.2

3.6

21

7. Per Cent Sold Out of State Out-of-state sales during this par- tween quarters was small. In addition, ticular 12-month period were found to hatcheries are more inclined to set to be stable, varying only slightly between out-of-state orders, and to ship only the quarter of most sales, when 6.9 chicks that have been ordered. Surplus per cent were sold out of state, and chicks are usually disposed of within the quarter of least sales, when 6.1 per the state in which the hatchery is locent were sold (table 17). cated. Oregon sold 26 per cent of its broiler Groups III and IV sold a much

larger portion of their chicks out of state than did the other three groups. Over the 12-month period, Group IV sold 1 out of every 5 chicks out of state. Of 17 hatcheries in this group, 10

were located in California, 5 in Oregon, 1 in Washington, and 1 in Utah. It is doubtful if out-of-state sales of broiler chicks contributed to fluctuations in broiler production. As men-

chicks out of state during the period

of the study (table 18). This compares

to 16 per cent for Washington, and only 5 per cent and 4 per cent for Utah and California respectively.

Shipments of broiler chicks from the Pacific Northwest were made to Idaho, Montana, Utah, California, and Hawaii. The amount sold in each area was not determined.

tioned above, the variation in sales beTable 18. Oregon Leads in Percentage of Chicks Sold Out of State

State

Hatcheries Number

July thru

Sept.

Oct.

thru

Dec.

Per cent Per cent

Jan. thru March Per cent

April thru June

Average for year

Per cent Per cent

Oregon

23

33.9

27.3

24.4

22.0

26.1

Washington

15

15.3

17.8

17.0

15.0

16.3

S

5.3

3.2

4.3

6.8

5.3

60

4.2

4.5

3.9

4.0

4.1

Utah California

8. Cancellation of Orders Cancellations of orders for broiler chicks can cause hatcheries a great deal

of trouble, particularly if such cancellations involve a large number of chicks

from 5,000 to 10,000. The vast majority of hatcheries surveyed in this study did not make the orders bind-

ing, nor did they request a deposit that could be kept in case of cancella-

verbal promise that he would take the chicks when hatched. If he refused to take them, the hatchery had no legal method by which it could recover losses resulting from such cancellation.

There were very few cancellations of orders during the 12-month period of this study. Most of the cancellations that did occur were caused by condi-

tion. They booked the order at the tions beyond the control of the proproducer's request and accepted his ducer, such as illness in the family, 22

or the inability of a producer to find a all broiler chicks placed that quarter. buyer for his present flock of broilers. During the other three quarters, the number was considerably less than one During the quarter in which the largest number of cancellations occurred, per cent. It is doubtful if cancellations surplus chicks resulting from such can- contributed to broiler production fluccellations amounted to one per cent of tuations.

9. Broiler Chick Price There was no evidence to indicate changed their price once during this that the price of broiler chicks con- period, 5 changed their price twice, and tributed to fluctuations in broiler production. Hatcheries quoted only one

price for each breed or cross. This

1 changed its price three times. 1vVhen a price change was made, it was usually to the extent of one cent.

1 chick. The weighted average price charged for

prices (which constitute approximately

price was for a No.

On the other hand, hatching-egg

broiler chicks by quarters is shown in two-thirds of the cost of a chick) table 19. The price was highest dur- changed by 27 cents per dozen in Oreing the summer quarter when chicks gon during the 12-month period of this sold for 17.9 cents each, and was low-

study.

Table 19. Average Price of Broiler Chicks Was Approximately the Same for All Hatchery Groups

Broiler

chick output per week

Group

(annual average) Number

Hatchcries Number

July thru

Sept. Cents

Cents

Jan. thru March Cents

Oct.

thru

Dec.

April thru June Cents

Average

for year Cents

I

50,000 and over

6

17.8

16.8

17.3

17.3

17.3

II III IV

30,000to49,999

11

18.3

18.0

17.0

17.0

17.5

10,000 to 29,999

30

17.8

17.9

17.6

17.5

17.7

5,000 to 9,999

17

17.9

17.9

17.8

17.7

17.8

0 to 4,999

39

17.1

17.4

16.9

17.3

17.2

103

17.9

17.4

17.3

17.3

17.5

V

All groups

est during the following spring when they sold for 17.3 cents each. Broiler chick prices were relatively stable during the period of this study. Of the 103 hatcheries in this survey,

While producers are aware of changes in chick prices, there is no evi-

dence indicating that they expand or curtail broiler production because the price of broiler chicks is reduced or in-

77 charged the same price for their creased 1 cent. broiler chicks the entire 12 months, 20 23

Western Poultry Marketing Research Technical Committee 1952

Regional Administrative Adviser Phil S. Eckert, Arizona Agricultural Experiment Station, Tucson, Arizona Western Poultry Marketing Research Technical Committee Rolice H. Anderson Utah California....Kenneth D. Naden E. L. Baum Washington Oregon....Charles lvi. Fischer, Chairman

Cooperating Government Members George A. Jackson, Jr., U. S. Department of Agriculture, Los Angeles, Calif.; Humbert S. Kahle, U. S. Department of Agriculture, Washington,

D.C.

24

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