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Poultry Processors Facing up to Challenges

by 5m Editor
29 October 2008, at 12:09p.m.

US - Poultry companies in the Carolinas are tightening their belts in these difficult economic times but there is optimism for the future as chicken remains popular with consumers.

Rising feed costs forced Sanderson Farms to delay plans to build a $126.5 million plant in Kinston, the Raleigh News & Observer reported in June, according to The Charlotte Observer from North Carolina. The company will likely wait until March to decide the next step, officials said.

In May, Pilgrim's Pride closed a chicken-processing plant in Siler City, 100 miles northeast of Charlotte, that employed 830 people. The closure also meant less work for growers.

In February, Tyson Foods announced plans to close a plant in Wilkesboro that would eliminate 400 jobs.

What It Means for Consumers

Chicken prices are up in the past year, despite the poultry industry's woes. But they are far from historic highs, said Richard Lobb of the National Chicken Council.

Skinless, boneless chicken breasts cost $3 per pound this week, up from $2.70 per pound this time last year, he said. That price has been as high as $4.99 a pound, Lobb said.

Whole chickens cost about 96 cents a pound, he said, a price that has held fairly steady.

Rising costs, wilting demand and a down economy have put poultry processors in a tight spot. That could signal tough times for the Carolinas, which have a large stake in the industry, local officials and poultry experts say.

The chicken industry's biggest producers, Pilgrim's Pride Corp. and Tyson Foods Inc., reported major losses last quarter, and experts say they're unsure when to expect a turnaround.

What that means for workers and Carolinas communities with ties to the business isn't yet clear. Some officials say they're just waiting – and trying not to worry.

"The whole situation is troublesome," commented Maurice Ewing, president of the Partnership for Progress in Union County, one of the state's top chicken-producing counties. "Worry is too strong a word, but we're watching."

Pilgrim's Pride, the country's largest chicken producer, has been pelted by rising costs and debt. The company's stock tumbled 40 percent last month after it reported big losses and the possibility of defaulting on its loans. Some analysts have said it could file for bankruptcy or be bought by a competitor. It closed on 27 October at $2.15, down from a 52-week high of $30.15.

Company officials said on the same day that they had agreed to an extension with their lenders through November 26. The company has been working on a business plan that addresses its financial challenges, it said.

The entire meat industry is hurting, partly because of rising feed prices over the past two years, said Richard Lobb, a spokesman for the National Chicken Council. Corn prices recently have dropped slightly to about $4 a bushel but that is up from $2.40 two years ago, he said.

At Pilgrim's Pride, for instance, feed costs in the third quarter rose $266 million over the same period last year, company spokesman, Ray Atkinson, said.

National policies pushing ethanol fuel have driven up the cost of corn, and the rising cost of fuel has made ethanol more attractive, Mr Lobb said.

In addition, there is an oversupply of chicken, caused by weakened demand and shrinking exports to Russia and other countries, experts say. The economy is also an issue, cutting down on business at casual-dining restaurants where chicken is popular.

Early Signs of Improvement

There are signs of a turnaround, continues the article. Soybean and corn prices have begun to drop. Experts anticipate one of the largest corn crops on record. And fuel prices are dropping, meaning the price of feed could fall further.

Chicken producers are also encouraged by the fact that fewer chickens are being hatched this year, meaning fewer in the market, some said.

"It seems to be kind of a belt-tightening time," Mr Lobb said.

Much is at stake in the Carolinas, which have about 50 processing plants. North Carolina ranks second in the nation in turkey processing and fourth in chicken processing. North Carolina poultry plants employ more than 20,000 workers and process more than 700 million chickens a year.

In South Carolina, poultry plants employ about 8,000 workers and process more than 200 million chickens annually.

Pilgrim's Pride has several facilities in the Carolinas, including a hatchery in Concord, feed mill in Wingate and chicken-processing plant in Marshville. Tyson Foods employs more than 5,500 people in North Carolina, including 1,600 at its Monroe poultry complex, company spokesman Gary Mickelson said.

North Carolina has already begun to feel the effects of the pinched industry. Pilgrim's Pride, which employs 1,900 workers in the state, closed a plant in Siler City earlier this year and announced this month that it would terminate contracts with 44 growers, said Mr Atkinson, the company spokesman.

"It's really been a challenging time," he said. "We're just continuing to look at all our options."

Pilgrim's Pride and Tyson are among Union County's top employers, and five other major poultry companies have facilities there, said Jerry Simpson of the North Carolina Cooperative Extension.

Ewing, Union's economic development official, remains optimistic.

"In Union, we're in pretty good shape," he said to The Charlotte Observer. "People are still going to eat, and chicken is one of the most reasonable sources of protein you can find."

5m Editor