May 30, 2012

 

Sanderson's profit rebound encourages US poultry producers

 

 

Sanderson Farms' recent profit rebound have raised hopes for the battered US poultry sector as the development highlights "supply driven improvements" to domestic demand.

 

The chicken producer reported earnings of US$23.9 million for the February-to-April quarter, compared with a US$16.3 million loss a year before, on revenues up 24% at US$595.0 million.

 

Earnings per share came in at US$1.04, ahead of investors' expectations of a US$0.95/share result.

 

And Joe Sanderson, the group's chairman and chief executive, forecast better conditions ahead as the US summer brings "what is typically a period of better demand for chicken".

 

While weak economic conditions are set to maintain "soft" demand for chicken from restaurants, Mr Sanderson highlighted that prices of breast meat sold to food service customers "improved seasonally the first two weeks of May".

 

He added, "Market prices for retail grocery store product have also moved higher."

 

The conditions contrast sharply with those a year ago which dragged Sanderson, and rivals such as Pilgrim's Pride, into the red, after US overproduction and economic weakness prevented them from passing on to customers the hit from higher grain prices.

 

However, thanks to industry-wide cutbacks, evident in continued declines in the number of US eggs placed for hatching into broiler chickens, producers have regained pricing power.

 

Prices of whole chickens, as measured by the Georgia dock benchmark, were 7.5% higher in the February-to-April quarter than a year before, with leg quarters appreciating by 22% and jumbo wings more than doubling in value.

 

Meanwhile, Sanderson paid 6.4% less for its corn and 15.2% less for its soymeal than a year before, meaning a boost to margins from lower costs, as well as from higher meat prices.

 

Furthermore, Sanderson, against the industry trend, increased its sale volumes too, by 10.8%, reflecting a continued ramp up in output at a Carolina plant opened last year, which more than offset trimmed capacity at some other sites.

 

Overall US broiler meat production fell by 2.2% to 9.1 billion pounds in the January-to-March period, according to US farm officials, who expect a 4.3% decline in the current quarter.

 

The slide fostered a draw down in inventories of chicken held in cold storage which, at 549 million pounds, were 17% lower at the end of March than a year before.

 

Mr Sanderson flagged the importance to chicken producers of the US meeting expectations of record corn harvest this year, so keeping downward pressure on feed prices.

 

The USDA foresees farmgate corn prices falling to US$4.20-5.00 a bushel in 2012-13, from 5.95-6.25 this season.

 

"There is no margin for error with this year's crop," he said.

 

"Because of the tight supply of both corn and soybeans, we expect grain prices to remain high and volatile at least until markets get some visibility on the quantity and quality of this year's crops.

 

"Until the crop is harvested, we expect to pay higher prices, at least over the short term, for both corn and soymeal."

Video >

Follow Us

FacebookTwitterLinkedIn