Source: Rita Jane Gabbett, MEATINGPLACE, 4/10/17



Chicken pricing fundamentals are very strong as supply is coming in tighter than expected and demand is strong given a recovery in export markets, Stephens Inc. analyst Farha Aslam concluded after hosting a conference call with Urner Barry to discuss the U.S. chicken, turkey, and egg markets.

“This should be a positive for Sanderson, Pilgrim's Pride and Tyson Foods,” Aslam wrote in a note to investors. The outlook for turkey, however, continues to be largely bearish given elevated supply levels relative to demand.

Year to date chicken production is up only 0.6 percent. Supply has been constrained by an industry effort to cut weights to improve product quality, as well as lower hatch likely due to an issue with a new breeder. Plant fires at numerous plants have further exacerbated the supply issues, Alsam noted.

All this calls into question earlier expectations that U.S. chicken supply would increase by 2 percent to 3 percent. Moderate pullet placements are also implying moderating chicken production growth in 2018. Production is expected to be moderate at about 2 percent annually, with near term supply possibly less than projected.

Chicken pricing remains strong while costs are declining in anticipation of a larger South American harvest and record plantings in the United States.

Sanderson forecasts
In a separate report, Aslam increased her fiscal 2017 earnings forecast for Sanderson Farms to $9.60 per share, up from $9.25 reflecting stronger than expected chicken prices and lower projected grain costs.

For the second fiscal quarter, the forecast is raised to $2.50 from $2.15 reflecting a strong environment for exports.

Aslam noted Sanderson’s new poultry complex in Texas supports the company's future growth. The plant is expected to have the capacity to process 1.25 million birds per week for retail chill pack customers. Initial operations are expected to begin in the first quarter of fiscal 2019.

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