April 16, 2008

US meat sector braces for tough times

The announcement of US' biggest chicken producer on cutting production for the second time in a month due to high feed costs and fuel is an indication that the US livestock industry is in for the hard times, according to market analysts.

Pilgrim's Pride Corp said the combined production cuts announced last month and Monday (April 14) will amount to about a 5 percent reduction in output.

Cattle and hog producers are also battling with higher output costs and will likely cut production in order to cope, according to Rich Nelson, an analyst from Illinois-based agriculture advisory firm Allendale Inc.

He said hog producers are expected to have losses through the rest of the year while poultry and cattle producers may recover by the second half.

The production cuts throughout the meat industry should eventually push up supermarket meat prices in 2009, economists and analysts said.

Reuter's estimates show Pilgrim's Pride is scheduled to report quarterly earnings on May 5, and analysts, on average, expect it to post a loss of US$53.5 million, or 81 cents per share, compared with a year-earlier loss of nearly US$30.7 million, or 46 cents. Tyson Foods, which produces beef, pork and chicken, is due to report earnings April 28 and Reuters Estimates shows analysts, on average, expect a small profit of US$4.36 million, or 1 cent per share, compared with US$66.14 million, or 19 cents, a year ago.

Sanderson Farms, the No. 4 chicken producer, will report earnings May 22 and is forecast to post a loss of US$1.37 million, or 5 cents per share, compared with a year-earlier profit of nearly US$27 million, or US$1.33 per share, according to Reuters Estimates.

A huge increase in corn prices -- which already posted a record price of US$6 per bushel, about double from the yearago -- are one of the primary reasons for the financial stress.

Paul Aho, an economist with the consulting firm Poultry Perspective, said corn prices are high and could go higher.

Strong demand by livestock feeders, ethanol producers, and foreign buyers is largely behind the rise in corn prices.

For Fieldale Farms, a private Georgia-based chicken producer, which feeds 450,000 bushels of corn a week, the cost of corn forced the company two weeks ago to slash chicken production by 5 percent, said Tom Hensley, Fieldale's executive vice president.

Cattle were sold to beef plants last week at mostly US$87 per 100 pounds, losing an estimated US$150 to US$200 on each steer and heifer sold, said Jim Gill, a consultant for the Texas Cattle Feeders Association.

Bob Wilson, an analyst with the livestock advisory firm HedgersEdge.com, said losing at least US$25 to US$40 per hog is "huge" and could spell disaster from the hog producers.

The losses already may have cattle producers cutting production. An upcoming government report should show a big drop in the number of young cattle added to feedlots. Gill said though the feedlot industry is going to survive, some feedlots may get out of business.