Sanderson, Pilgrim's upbeat on chicken market

Sanderson Farms became the second poultry giant in two weeks to unveil better-than-expected results, helped by the fall in grain costs which could save some $150m from its feed bills.

The Mississippi-based group said it had returned $28.9m to profit for the November-to-January period, compared with a loss of $6.94m a year before, making a "solid start" to its financial year.

Although revenues fell 1.8% to $584.9m, a reflection of lower prices for some major cuts such as breasts and jumbo wings and "weak demand" from restaurants, production costs fell by 11.8% thanks to the decline in grain costs fuelled by strong US harvests last year.

"While poultry market prices were mixed compared to the same period a year ago, our grain costs were lower," said Joe Sanderson, the Sanderson Farms chairman and chief executive.

The group paid 12.8% less for its soymeal during the quarter than a year before, and 39% less for its corn.

And even though there has been some recovery in grain costs this month, encouraged by a cut earlier this month to official estimates for US grain stocks at the end of 2013-14, Sanderson Farms forecast a decline in its feed bills for its financial year to October.

"Had we priced all of our grain needs at current prices yesterday, our grain costs would be lower by $153m during fiscal 2014 compared to fiscal 2013," Mr Sanderson said.

Profits growth

Sanderson Farms said its earnings per share for the latest quarter equated to $1.25, beating the $0.85 per share that analysts had forecast.

The data followed data from rival Pilgrim's Pride last week showing earnings per share of $0.55 for the October-to-December period, beat Wall Street expectations of a $0.47-per-share result, and the $0.09 per share achieved a year before.

Pilgrim's Pride stressed operational improvements, and pricing strategy, for its improvements, besides lower feed costs.

However, both groups agreed on the prospect of elevated beef and pork prices bolstering demand for poultry meat.

Chicken vs beef and pork

"We expect market conditions in the retail grocery store market to remain strong as chicken will compete once again during 2014 with high-priced beef and pork," Mr Sanderson said.

At Pilgrim's Pride, chief executive Bill Lovette said that US pork supplies "will see some significant challenges for the summer months" from the outbreak of porcine epidemic diahorrea virus (PEDv) highlighted separately on Tuesday by genetics group Genus.

"Beef is also facing supply pressures, as producers balance the high prices of feeder cattle against retention needs," dynamics which helped support cattle futures despite US feedlot data late on Friday initially deemed "bearish" by brokers.

"What this means for chicken is that even with potentially higher supplies - which, by the way, we have not seen at this time - there should be a price strength as competing proteins reach even higher levels," Mr Lovette told investors.

'Conducive to relatively strong pricing'

In fact, Mr Lovette forecast flat US chicken production for now, noting that while the number of eggs set in incubators is rising at a rate of some 1.5%, the eggs are coming from older hens, reducing the proportion hatching to the lowest levels in six year, below 82%.

"We're already seeing through week seven that we're not placing any more chickens than we did last year. Weights, average weights are maintaining about where they were last year," he said.

 "Perhaps late in fourth quarter of 2014, I think would be the earliest that we would see a material amount of hatching egg supply different than 2013.

"The supply side of chicken will be conducive to relatively strong pricing as we go through the year."

'Healthy, fully employed, confident US consumers…'

Mr Sanderson also cautioned over expectations of a rise in poultry production.

"While broiler egg sets have been higher than the previous year's levels most every week since last August, the industry remains constrained by limited breeder stock supplies," he said.

"As a result, we don't expect a significant increase in domestic chicken production until the second half of calendar 2014 at the earliest.

"Healthy, fully employed and confident American consumers could easily absorb the additional chicken production indicated by higher broiler egg sets if we see further improvement in macroeconomic conditions."

Sanderson Farms shares stood 2.6% higher at $74.13 in midday deals in New York.

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