July 22, 2011

Gloomy chicken market to affect Sanderson, Tyson in Q3

Dwindling chicken breast prices and a very bleak industry prompted BB&T Capital Markets analyst Heather Jones to slice her third-quarter estimate for Sanderson Farms to a loss of US$0.86/share.

Jones also trimmed her profit outlook for Tyson Foods.

"Boneless/skinless pricing has deteriorated considerably post July 4 and is at record lows for this time of year," according to Jones on Thursday (Jul 21).

As the industry enters a seasonally weak demand period, breast prices are down 30% from a year ago, and breast meat inventories at the end of May were about 35% above a year ago, she said.

"It is a jarring reality, especially in light of expectations going into 2011," she wrote. "Although there have been indications of some shift in demand to chicken, it has been very modest."

The stalled recovery in food service and a consumer preference for hamburgers has muted some menu shift to chicken, she said.

Producers are reducing egg sets on the order of 5-6%, but cuts of 8% or greater are needed due to "anemic demand and stubbornly high weights."

Jones had expected Sanderson to earn US$0.27 a share in the third quarter before she cut her forecast to a loss. For the full year, she expects the company to lose US$3.72, steeper than her previous forecast for a loss of US$1.93.

For Tyson, Jones reduced her third-quarter profit estimate to US$0.33 a share from US$0.44 previously and her full-year forecast to US$1.82 a share from US$2.03. The cuts also reflect deterioration in pork packing margins, she said.