Investors received a further insight into the pressure on
livestock producers from high grain prices as poultry group Sanderson Farms warned
of reduced margins ahead, while academics said that the hog industry is set for
Joe Sanderson, the Sanderson Farms chairman and chief
executive, warned of a "challenging environment growing forward" as the
Mississippi-based company copes with feed prices swollen by drought damage to
US corn and soybean crops.
"While market prices for chicken remain higher than they
were last year and have strengthened over the past few weeks, they are not high
enough to offset what we now expect to be significantly higher input costs
during the coming months," he said.
The group had reduced by a further 2% the number of eggs
placed in incubators for growing into broiler chickens, in addition to 4% already
cut, "to lessen the impact of the higher grain costs we are facing".
Furthermore, it has put on ice plans for a new plant in North
Carolina "until market fundamentals improve, including sufficient confidence
that the global supply of feed grains will be adequate to meet world demand at
The caution followed a warning from Purdue University academics
that the US pork industry "is facing losses unseen even in the fall of 1998,
when hog prices at times approached zero".
High grain prices, besides raising hog producers' feed costs,
have prompted a wave of herd liquidation which has driven animal values lower,
with Chicago hog futures, on a front contract basis, down more than 20% over the
|Purdue University forecasts for US hog producers' profits, per animal|
Q3 2012: -$30
Q4 2012: -$60
Q1 2013: -$38
Q2 2013: -$5
The spot October contract stood at 73.125 cents per pound in
late deals on Tuesday, down by 0.2% on the day, and by 10% in the last month.
Hog slaughter last week hit 2.265m head, up 4.6% week on
week and 6.7% on the same week a year ago. Pork production rose even faster, up
7.2% year on year to 454.3m, receiving an extra boost from higher hog weights
encouraged by cooler weather in recent weeks.
Hog producers "tragically" face feed costs of more than $75
cents per live hundredweight of hog "for the remainder of the summer, this fall,
and winter", well over the prices expected at $55 cents per hundredweight,
This implies record quarterly losses of more than $60 per
animal, beating the previous high of $45 per head set 14 years ago.
"Financial losses of the magnitudes projected here will
cause massive erosions of family equity and some bankruptcies," Purdue
economist Chris Hurt said, forecasting "short-term carnage" and adding that
producers were still recovering from losses in 2008 and 2009.
"Some producers face this tsunami in weakened financial
"The irony is that hog production may return to
profitability by mid-summer 2013 when meal prices begin to moderate, hog prices
move to record highs, and rain and reasonable temperatures bless our nation's
corn and soybean fields once again."
'Steady retail grocery store demand'
Sanderson Farms' comments came as the group unveiled a profit
of $28.7m in the May-to-July quarter, compared with loss of $55.7m a year
The return to the black reflected "improved market
conditions" after industry cutbacks eroded a glut of chicken meat, and returned
pricing power to producers.
"Market prices for poultry products were higher than the [same]
quarter of fiscal 2011," Mr Sanderson said, attributing the increase to "steady
retail grocery store demand and lower production".
The earnings, equivalent to $1.25 per share, beat Wall Street
expectations of a $1.20-per-share result.
Sanderson Farms shares closed 8.5% higher at $44.05 in New York.