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Sanderson Lowers Production in Face of Rising Feed Costs

29 August 2012, at 7:57am

US - Sanderson Farms has benefited from higher poultry product prices in the third quarter 2012, reporting a net income of $28.7 million, compared with a net loss of $55.7 million for the third quarter of 2011. To maintain this success, the company has announced it will reduce production in face of rising feed costs, until the market has stabilised.

Net sales for the first nine months of fiscal 2012 were $1,737.7 million compared with $1,418.2 million for the first nine months of fiscal 2011. Net income for the first nine months of fiscal 2012 totaled $44.6 million, or $1.94 per share, compared with a net loss of $105.5 million, or $4.77 per share, for the first nine months of last year.

"Sanderson Farms' financial results for the third quarter of fiscal 2012 reflect improved market conditions when compared to last year's third quarter," said Joe F. Sanderson, Jr., chairman and chief executive officer of Sanderson Farms, Inc.

"Market prices for poultry products were higher than the third quarter of fiscal 2011, as the Georgia Dock whole bird price reached historic high prices during the quarter. These prices reflect steady retail grocery store demand and lower production. In addition, market prices for wings continued a strong counter seasonal upward trend. While retail grocery store demand has remained steady, food service demand remains sluggish, keeping the market price for boneless breast meat under pressure during the third quarter. Boneless breast meat prices have strengthened during August."

Market prices for poultry products were higher in the third quarter of fiscal 2012 compared with prices in the third quarter of fiscal 2011. As measured by a simple average of the Georgia dock price for whole chickens, prices increased 8.6 per cent compared with the third quarter of fiscal 2011.

Boneless breast prices improved when compared to last year's third fiscal quarter, averaging 14.7 per cent higher than the prior-year period, but still remained relatively weak given sluggish food service demand. Jumbo wing prices averaged $1.59 per pound for the third quarter of fiscal 2012, up 104.2 per cent from the average of $0.78 per pound for the third quarter of fiscal 2011.

The average quoted market price for bulk leg quarters increased approximately 12.2 per cent for the quarter. Cash prices for corn delivered to the Company decreased 5.7 per cent compared with the third quarter a year ago, while the price for soybean meal delivered to the Company increased 8.2 per cent. For the nine months ended July 31, 2012, the Company's cash prices for corn decreased 1.2 per cent and soybean meal decreased 2.5 per cent when compared to the nine months ended July 31, 2011.

"While market conditions improved during our third fiscal quarter compared to last year's third quarter, the Company and our industry face a challenging environment going forward," added Mr Sanderson.

"Market prices for grain are at historic highs, and ongoing drought conditions across much of the country have created considerable uncertainty regarding this year's corn and soybean crops. While the quantity available and prices we will pay for grain during the coming months will ultimately depend on this year's final crop performance, prices are certain to be much higher than those paid for grain this fiscal year. Based on current markets, cash paid for feed grains would be approximately $61.1 higher during fiscal 2012 compared to fiscal 2011. We have priced little of our grain needs going forward, and will remain on the market for our needs for now."

"While market prices for chicken remain higher than they were last year and have strengthened over the past few weeks, they are not high enough to offset what we now expect to be significantly higher input costs during the coming months. In light of these costs, beginning August 6, 2012, we reduced our egg sets by two per cent across all Company divisions to lessen the impact of the higher grain costs we are facing. This reduction was in addition to the four per cent reduction started January 1, 2012, and we will run our plants at six per cent below capacity until market conditions improve."

"Despite challenging market conditions, we remain confident in the long term success of the Company and our industry," added Sanderson. "We also remain confident in and committed to our growth strategy. Toward that end, we announced today we have selected Nash County, North Carolina, as the site for a future new poultry complex. We have purchased land near Rocky Mount, North Carolina, on which a new hatchery will be built, and we own options to purchase property on which spray fields that will form a part of a waste water treatment facility will be located.

"However, the timing of building that complex remains on hold until market fundamentals improve, including sufficient confidence that the global supply of feed grains will be adequate to meet world demand at reasonable prices. In addition to market conditions, construction of the Nash County facilities remains subject to other contingencies such as obtaining the land on which the processing plant will be built, obtaining the necessary permits to construct and operate the facilities, and obtaining acceptable economic incentive packages from the State of North Carolina and the local government."