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.
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
"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
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."
employed, confident US consumers…'
Mr Sanderson also cautioned over expectations of a rise in
"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
"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.