Sanderson, Rabo flag thriving US chicken industry

The US chicken industry received a double vote of confidence as Sanderson Farms credited "improved market conditions" for better-than-expected results, while Rabobank flagged the sector's "good profitability".

Sanderson Farms, unveiling a 2.1% rise to $24.4m in quarterly earnings despite a soaring feed bill, said that the increase, which defied Wall Street expectations of a decline in profits, reflected "improved market conditions, driven primarily by an overall increase in demand for poultry products".

Sales rose 4.4% to $621.2m for the period, ending April 30, as "strong" demand from grocery customers and importers supported prices, more than offsetting a drop in volumes.

Chicken prices, as measured by the benchmark Georgia dock values, were 9.9% for whole chickens in the quarter, compared with the same period last year, while boneless breast prices rose 14.2% and "have continued to move higher".

'Strong demand'

And the group added that it was "reasonably optimistic" on prospects, heading into what is typically a stronger period for demand for chicken, and barbecue meats, heading into the US summer.

"While grain costs remain above historical levels, demand for chicken products is strong," Joe Sanderson, the Sanderson Farms chairman and chief executive, said.

"Market prices for boneless breast meat sold to our food service customers improved through April and May, and market prices for retail grocery store products have also moved higher."

Prices were being supported by industry curbs on production, making up for the dent to demand from soft economic conditions.

"Weekly broiler egg sets continue to run slightly above last year's numbers, but breeder placements remain lower," Mr Sanderson said.

 "It appears the reduced size of the breeder flock will constrain production over the short term despite higher industry returns."

'Power shift'

The comments were echoed by Rabobank, which said that "good supply discipline and even better pricing discipline" were providing US poultry groups with "good profitability".

And this "despite last year's drought which caused a big increase in feed input costs". Sanderson reported a 15.9% increase in prices paid for corn, and 37% rise for soymeal, key chicken feed ingredients.

The sector's strength was apparent in an increase of wholesale prices at a faster rate than retail ones, which Rabobank said "reflects a power shift in the value chain".

Chicken demand was being underpinned by the fact that, even though broiler meat prices have risen, those of beef have risen even more, to record levels.

 "In these times of economic weakness, affordability becomes more important, and chicken is becoming more affordable than beef."

Market reaction

Sanderson Farms' earnings were equivalent to $1.06 a share, well above Wall Street expectations of a $0.71-a-share result.

The group's shares set a fresh record high of $69.69 in early deals in New York, before easing back to $69.04 in lunchtime deals, up 4.6% on the day.

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