May 21, 2008

 

Expected spike in chicken demand and prices to bring relief to US producers
 

 

A seasonal upswing in chicken consumption and anticipated jump in spot-market poultry prices, could bring much needed cheer to the US poultry sector, which has been battered lately by high feed prices and low demand.

 

The cost of producing a live chicken has risen by as much as 65 percent over the past two years, according to Clint Rivers, CEO of Pilgrim's Pride Corp., the top chicken producer by volume.

 

Analysts are saying, with caveats, that the business is finally ready to rebound. Some analysts forecast price increases in the spot market can outpace rising commodity costs in the short term, and maybe in the long term.

 

In a piece welcome news for the poultry industry .P. Morgan Chase & Co. analyst Pablo Zuanic said predicts that chicken prices would have risen by July-August to levels that would more than offset corn costs to the levels seen last summer.

 

All top three chicken companies - Tyson, Pilgrim's Pride and Tyson has increased prices after suffering severe losses.

 

Pilgrim's Pride reported a net loss of US$111.4 million for the three months ended March 29, while Tyson's chicken business posted an operating loss of US$61 million, only Sanderson reported profit of US$6.2 million for the quarter ended Jan. 31.

 

Despite its losse, stocks of chicken companies are up, reflecting investors' optimism in them --Sanderson is up about 33 percent so far this year, while Tyson is up about 20 percent. Although Pilgrim's Pride is down about 15 percent, the stock has been recovering from its recent lows.

 

The fact that chicken companies have cut production to reduce oversupply and higher prices due to shorter demand were reasons why investors think chicken companies have gotten their act together.

 

"Given the recent decline in egg sets and chick placements, we now believe that we are headed to a more balanced supply of chicken in the second half of 2008," Davenport & Co. analyst Ann Gurkin wrote in a recent research note.

 

In fact egg sets have been declining for seven straight weeks and are 2 percent below year-ago levels, in response to the surge in feed-grain prices last fall.

 

Pilgrim's Pride intends to cut production by 5 percent in June. Cagle's Inc. trimmed production by 4 percent.

 

Still, while others are retreating, Tyson is sticking to its current output, and Sanderson plans to boost output 4 percent as it fills a new plant.

 

On Thursday, Mr. Rivers of Pilgrim's Pride told investors at a BMO Capital Markets conference he would like the industry to trim total production by 3 percent - 4 percent

 

"The chicken market is showing clear signs of turning," wrote Stephens Inc. analyst Farha Aslam, who recently upgraded shares of Sanderson Farms to "overweight." She said production cutbacks and seasonal demand have helped to fuel a 20-cent increase in boneless, skinless breast-meat prices to US$1.46 a pound. Aslam expects that price to reach at least US$1.80 this summer.