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."
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
"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.
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.