US chicken industry poised for profits in 2012

he U.S. chicken industry is poised to return to pro;tability in 2012, after 14 months (and counting) of ;nancial losses brought on by high grain costs and weak consumer demand. To its credit, the industry is working its way back to pro;ts the DIY way – not by waiting for an improvement in demand or lower feed costs but by cutting egg sets and pullet placements.

Joe Frank Sanderson Jr., CEO of Sanderson Farms, told analysts at the J.P. Morgan SMid Cap Conference in late

7% and pullet placements down 9% year-over-year, and the chicken industry has already bene;ted from counter-seasonal price improvements. As Sanderson Farms President Lampkin Butts explained, improvements in chicken prices in November 2011 were signi;cant not for their amount but for the fact that they occurred in a typically weak market period.

Sanderson pointed to the fact that the
industry has been reducing egg sets since
June 2011. Referring to the industry’s loss-
es, he said, “I believe the worst is behind
is not contingent on
low-cost grains or
improved consumer
demand.

“I think we are
going to have high
grain prices again
in 2012,” he said. Sanderson also
added, “I do not believe we are going
to get any improvement in demand
in 2012.”
However, the possibility of some-
what lower grain prices in 2013 sweet-
ens the longer-term out-
look. Sanderson explained:
“There have been two bad
corn crops in a row. The
odds are that we ought to
have lower corn prices going into 2013.

If the corn harvest is around 94 mil-
lion acres and there is trend-line yield
of 161 bushels per acre, there would
likely be around a 1. 9 billion bushel
carryout. That means corn with a ‘ 4’
in front of it.”
Also helping the industry’s longer-
term ;nancial outlook would be a rise
in consumer demand.

“At some point – in 2013, 2014 or 2015 – there will be 20 million to 25 million people who are now unemployed or underemployed returning to the workforce. That is going to happen over a period of time, and our industry could be sitting there at that time with a smaller breeder ;ock and some plants shuttered. So I am looking out over the next four or ;ve years, and I want to have some new plants running when that happens.” ■

T

“I believe the worst is behind us.” —Lampkin Butts, President, Sanderson Farms

November 2011 that the chicken industry would return to pro;tability through production cuts in 2012 with or without an improvement in feed costs because producers cannot withstand further financial losses.

Although Sanderson Farms and a few other industry companies reportedly continue to have strong balance sheets, the ;nancial pain has been widespread in the industry. “From bankers we have heard that industry balance sheets got very bad, very quickly in April and May ... Industry members are in bad enough shape that they have to do whatever they can to return to pro;tability,” Sanderson said.

us.” He predicted that the counter-seasonal price improvements seen in November 2011 would accelerate after Christmas.

Counter-seasonal rise in
chicken prices

USDA reports showed egg sets for November-December 2011 broiler production down year-over-year as much as

Positive outlook for 2012
and 2013

Barring extraordinary negative economic events, Sanderson indicated the industry appears to be on a footing to be pro;table in 2012 and 2013. “I can’t see the future,” he said, “but I know what comes after a bad ;nancial period like the industry has been through. Because of economics, that is what has to happen.” There should be an improvement in industry economics in 2012, “and 2013 could be a better year if the smaller pullet ;ock continues into 2013,” he said.