MBA 675

Financial Research Group Project

Matt, Minu, Darcy
Butterball 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 shortage
During 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)
Problems
Because 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:
Months Cost to
grocery
Stores
Retail Price Cost for 16
lb. Turkey
Retail for
16 lb.
Turkey
Markup
November-
December
$.93-.95/lb. $.99/lb. $14.88-
$15.20
$15.84 6%
January-
October
$1.00/lb. $1.19-
$1.29/lb.
$16.00 $19.04-
$20.64
22%

Turkey Production Process
Butterball 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 Costs
As 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 Demand
Turkey 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)


Competition
Turkey 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.
Pounds Prediction
Year Pounds Change % Increase Avg. % Increase
2010 5,644,000,000
2011 5,791,000,000 147,000,000 2.60%
2012 5,967,000,000 176,000,000 3.04%
2013 5,925,000,000 (42,000,000) -0.70%
2014 6,055,000,000 130,000,000 2.19%
1.78%
2015 6,162,779,000
2013 & 2014 are USDA predictions
Price Per Pound
Year Change % Increase Avg. % Increase
2010 90.40
2011 102.00 11.60 12.83%
2012 105.60 3.60 3.53%
2013 99.00 -6.60 -6.25%
2014 98.50 -0.50 -0.51%
2.40%
2015 100.86
2013 & 2014 are USDA predictions
Avg Price per lb/cents

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%.



24%
Projected Profits 2014 6,055,000,000 5%
QTR 1 3% 181,650,000 0.985 1.221 0.236 42,942,060.00 $
QTR 2 3% 181,650,000 0.985 1.221 0.236 42,942,060.00 $
QTR 3 3% 181,650,000 0.985 1.221 0.236 42,942,060.00 $
QTR 4 91% 5,510,050,000 0.985 1.034 0.049 271,369,962.50 $
400,196,142.50 $
Mark-
up Amt Stores $ Profit
Price Paid by
Stores
Price
Charged by
Store Pounds Sold % Sales
Growth
2013 to 2014 1.68%
2014 to 2015 4.22%
2013 to 2015 5.97%
References
Butterball, 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#.uqmvcydlwfy
Video: http://abcnews.go.com/GMA/video/butterball-warns-fresh-turkey-shortage-20926214