The Continued Saga of the Chicken Industry

The country is still buzzing from the Pilgrim's Pride bankruptcy announcement, but that isn't the only news circulating in the chicken industry. Sanderson Farms, the fourth largest producer in the country posted a loss of $51.9 million, or $2.56 per share, for the fourth quarter.

While Sanderson stocks were expected to plummet, Joe Sanderson, Sanderson Farms CEO made a statement via conference call to investors assuring them that his top priority was protecting the company's balance sheet and not seeking to buy up assets. This announcement helped the company's shares rise $4.65, to $30.27 per share. You can listen to the conference call here at the Sanderson Farms website, or read a detailed stock analysis at Forbes.

What is Sanderson blaming the loss on besides feed costs? Football fans. Yes, really. Reuters has more on the story:

"Normally wing prices firm after Labor Day as football starts and fans begin moving into bars and water holes to eat Buffalo wings and watch their favorite teams. That did not happen this fall," Joe Sanderson, chief executive of No. 4 chicken producer Sanderson Farms Inc, said Thursday during a conference call with analysts.

He points out that even while wing prices have dropped nearly 25% since last year, the recession is causing fans to stay home. Until demand increases or production decreases, wings will continue to be a money loser. In an attempt to jump start the latter, Sanderson announced that they would cut production by 10%.

The hard times in the chicken industry, while not as prominently displayed as the auto industry, are starting to have a pronounced effect on working Americans. The recession is causing people loose jobs and not be able to eat out or buy as much at the grocery store, and in turn major plants are cutting back or ceasing production altogether. Sanderson announced that they would not give out their annual bonuses for 2008, while a plant which did chicken de-boning for Tyson was forced to close after the poultry giant chose not to renew their contract. The town of Pittsburgh Texas is waiting to see what will become of Pilgrim's Pride- the company employs about 5,000 people at its headquarters. The Associated Press has more on the story:

"It would look like a ghost town," said Strawn, who says Pilgrim stops by the restaurant many weekends. "There ain't nothing else here that can keep Pittsburg up."

Despite the continuous flood of bad news, people are still trying to remain positive and hope for a turnaround. Joe Sanderson said in his statement to shareholders that he expects the American people will again visit restaurants.

"People haven't quit eating out for the rest of their lives," he said.

Further Reading:

ENC Today on tough times for chickens.
WXVT15 News on the Petit Jean Poulty Plant closing.
CNN Money on Sanderson stock prices.

Were low prices just a summer vacation?

The two main factors behind food prices, corn and oil, took hits this week that could increase food prices into the winter.

First, while the country begins the rescue and recovery of those affected by hurricane Ike, market watchers are seeing the first signs of the impact Ike will have on the nation's business sector. The hurricane caused about a fifth of the nation's oil refineries to be shut down. These refineries accounted for 20% of the national's oil. While some Texas residents saw prices spike as high as $5.00 a gallon, experts do not think the entire country will see prices get that high. There is also hope that if oil remains low and that the refineries get back to production quickly, we could see prices fall. MSNBC Reports:

(Tom) Kloza (with the Oil Price Information Service) said prices are more likely to be higher throughout the Southeast because they get fuel from Gulf refineries. He expects nationwide prices to begin falling later in the fall, perhaps as low as $3 a gallon by year's end, based on current oil prices of about $100 per barrel.

Secondly, despite news that this year's corn and soybean crop will still be some of the largest on record, the Agricultural Department trimmed its projections. The New York Times Reports:

The Agriculture Department reduced its forecast for corn production to 12.1 billion bushels, from its 12.3 billion estimate last month. The department projected the soybean crop to be slightly lower, at 2.93 billion bushels, down from an earlier estimate of 2.97 billion.

The news caused corn and soybean futures to rally, with corn taking more than a 5% increase, to end at $5.63 per bushel. The report was issued before the markets opened on Friday, causing major meat producers such as Tyson and Pilgrims Price to suffer stock losses in the morning. By the end of the day, however, most major companies had recovered. You can read more about how the report affected companies via Forbes.com.

How bad is the news? The Chicago Tribune reports that it is not just the trimmed projection, but the details of the report that could potentially have negative affects:

The report indicated that dry weather in August is taking a toll on production, just as lower prices kicked up demand for corn and soybeans. As a result, the harvests might not be large enough to replenish corn and soybean stocks going into next year.

That is certain to put pressure on food industry manufacturers and consumers, who are contending with higher prices for everything from milk to steak.

With demand for corn and soybeans up next year, farmers will have to choose which crop should cover the majority of their fields. Much of that choice will boil down to which crop generates the highest profit, which will be decided largely by prices in the futures market.

"We're going to have a huge battle for acres next year," said David Hightower, editor of the commodities newsletter The Hightower Report.

Further Reading:

MarketWatch on Friday's corn rally.
NPR on Ike and the oil refineries.
The Wall Street Journal on the soybean stockpile worries.

Picture by Noel Zia Lee. The original can be seen here.