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Sanderson flags timely US chicken demand upswing

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Sanderson Farms unveiled a long-awaited pick-up in chicken demand from US caterers and restaurants, just as bird flu fears are denting exports, although the poultry producers' profits rose by less than investors had forecast.

The Mississippi-based group, the third-ranked US poultry producer after Tyson Foods and Pilgrim's Pride, said that "for the first time since 2008, we are able to say demand at food service has improved", flagging the boost from increased confidence in economic recovery.

"Traffic and same store sales at food service establishments has improved… aided by lower gasoline prices and improving macroeconomic factors," said Joe Sanderson, the company's chairman and chief executive.

"Demand for chicken remains strong from our retail grocery store customers."

Bird flu factor

The firm domestic demand environment contrasts with a US poultry export environment overshadowed by bans imposed by many countries on supplies from at least some states, amid the worst outbreak of bird flu in the country's history.

US turkey meat exports fell by 11.0% year on year in March, and broiler shipments by 4.1%, whole official data last week showed 765.5m pounds in chicken inventories in US cold storage as of the end of March, a rise of 31% year on year.

"Chicken inventories are burdensome," said Paragon Economics and Steiner Consulting, adding that "the leading culprit is, not surprisingly, leg quarters whose stocks are up nearly 80%... primarily due to exports slowed by the various reactions of export customers to avian influenza".

However, US officials have raised hopes for an end to the bird flu epidemic, with new cases decreasing in commercial flocks, albeit after prompting the destruction of more than 40m birds this year.

Prices vs costs

Sanderson Farms, which did not mention bird flu in its results statement, highlighted a "mixed" period for poultry meat prices in the February-to-April quarter, with prices of leg quarters, a key export, falling by 20% but those of jumbo wings 40% higher year on year.

US inventories of wings, at 44.8m pounds as of the end of last month, were down 27% year on year, according to last week's USDA cold storage data.

However, Sanderson said that a rise in its volumes in the latest quarter more than offset the dent from "slightly lower" prices overall, lifting sales by 8.5% to $716.6m.

"Our profitability for the second quarter also benefited from lower feed costs," Mr Sanderson said, noting an 11.8% drop in the group's feed bill.

Earnings rose 40% to $71.2m although, at $3.13 per share, this was lower than the $3.32 per share that investors had expected.

'Optimistic'

Mr Sanderson added that the group was "optimistic" on near-term prospects, with the summer typically the time of peak demand for chicken, and with lower grain prices continuing to depress feed costs.

While industry broiler egg sets "continue to run above last year's numbers, and breeder placements are higher", implying production rises ahead, "macroeconomic conditions continue to improve," Mr Sanderson said.

"The market has absorbed the increased production well during the first half of our fiscal year."

By Agrimoney.com

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