Record chicken prices bode well for US producers

Record chicken prices bode well for US poultry groups, Sanderson Farms said, even as it unveiled a surprise quarterly loss, and warned that high grain prices will continue to instil a "challenging cost environment".

The Mississippi-based company warned that conditions for the US chicken industry were "still challenging", restating a forecast last week of continued "weak demand" from the food service industry, besides flagging elevated feed costs.

"We continue to experience high grain prices, and expect a challenging cost environment throughout the fiscal year," Joe Sanderson, the group's chairman and chief executive, said.

"Corn supplies are at their tightest level in 15 years, which will likely keep upward pressure on grain costs at least until the market gets some visibility into the quantity and quality of the 2013 crops."

Record prices

However, Mr Sanderson also highlighted the rise in chicken prices, despite rising numbers of eggs being placed for growing into broiler hens, signalling rising output ahead.

Egg sets, after remaining below year-before levels for most of 2012, "have trended higher over the past few weeks", reaching 198.7m in the latest week, up from 197m the previous week and 194.7m a year ago.

Meanwhile, the US Department of Agriculture forecasts domestic broiler meat production growing by 264m pounds, to 37.3bn pounds this year.

"Despite slightly higher chicken production, market prices have remained the same or move higher, indicating at least some improvement in demand," Mr Sanderson said.

Chicken prices, as measured by the benchmark Georgia dock rate, reached a record 100.5 cents a pound for whole chickens, according to latest weekly data, up 9.8% year on year.

Capacity reopened

Indeed, Sanderson Farms, which in 2011 unveiled production cutbacks, said it was to return to operating at full capacity, from a level of 94%, as measured since October.

This underutilisation "has adversely affected our costs," Mr Sanderson said, unveiling a return to full production in June.

"While grain costs remain relatively high, this move is supported by demand from our customers and our desire to keep our costs competitive."

Raising capacity will allow the group to spread its fixed overheads across a broader volume of sales.

In the red

The group unveiled a loss of $6.9m for the November-to-January period, the first quarter of its fiscal year, equivalent to $0.31 a share.

While an improvement on the loss of $8.0m, or $0.36 a share, a year before, the figure fell short of Wall Street hopes of breakeven.

The loss reflected high grain prices, which offset the impact of a 15.1% rise to $595.8m in sales.

Sanderson Farms shares closed 3.0% lower at $50.47 in New York.

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