“Our results reflect significantly higher poultry market prices during our third fiscal quarter when compared to last year’s third quarter,” said Joe Sanders Jr., chairman and CEO, during a conference call on Aug. 27. “These increases were fueled by steady demand for chicken in the retail grocery store market and continued good white meat demand at foodservice.
“Foodservice demand and market prices for boneless breast meat spiked in May as several QSR and food service establishments featured chicken on their menus. As I stated on our May call, this food service demand has been driven by menu shift rather than increased foot traffic through restaurants, as restaurant traffic continues to be flat at best.”
Sanderson said the foodservice shift from beef to chicken has been gradual.
“Early in the year they (foodservice operators) knew beef prices were going to be high,” he said. “So it just happened in May that we looked up one day and McDonald’s and Kentucky Fried Chicken and Wendy’s and Golden Corral, every time you turned the television on there were chicken features.”
Sanderson said feed costs were higher in the third quarter and for the first nine months of fiscal 2013, but he said relief may be on the way.
“Although wet weather this past spring caused crops to be planted late, good growing conditions this summer have fueled optimism for a good crop,” he said. “The crop is not yet in the bin, however.
“Based on what we have priced to date and assuming that we have priced our remaining needs through the end of the fiscal year, at yesterday’s (Aug. 26) closing prices on the Chicago Board of Trade our cash cost for feed grain purchased would be approximately $79 million higher this fiscal year than last year. However, our cash cost for our fourth fiscal quarter would be $65 million lower than last year’s fourth quarter.”
One concern facing Sanderson Farms and the rest of the chicken industry is the potential for increased production and its impact on future profitability. Sanderson said that while such concerns may be legitimate, he believes the chicken industry is facing limited production prospects, because the breeder stock needed to expand production isn’t available.
“We haven’t talked with all of the primary breeders,” Sanderson said. “But when the industry cut back 10 percent, which is what happened in 2008, the primary breeders did the same thing. They didn’t keep all their breeding stock in place waiting on the industry. They cut back just the same.
“So they have got to replace their breeding stock before they can load the industry back up. So I am thinking it’s going to be gradual before it can come back. I think it will be the second half of 2014 before it can really change materially. That doesn't mean it can’t change 2 percent or 3 percent. But it is going to be the second half of 2014 before there can be a huge change.”