Source:  Rita Jane Gabbett, MEATINGPLACE.COM, 2/23/10

Sanderson Farms reported improved sales and earnings in its first quarter ended Jan. 31 as strong retail demand boosted chicken prices while reduced feed costs improved margins, even as uncertainty about export opportunities in Russia and China remain unresolved.

The Laurel, Miss.-based poultry processor reported net income of $15.8 million, or 75 cents per fully diluted share, on sales of $420 million, compared to a year-ago net loss of $6.7 million, or 33 cents per share, on sales of $388.9 million.

Chairman and CEO Joe Sanderson told analysts on a teleconference that while foodservice demand remains soft — a trend he expects to continue through the year — retail demand for chicken has remained strong and current supply levels are balanced with consumer demand.

Feed costs in the quarter decreased by 4.6 percent from a year ago, helped by declines in January after USDA predicted record combined corn and soybean crops, while South American crops also look promising.

"I don't feel the pressure to buy corn," said Sanderson, noting the company has hedged its corn needs for feed through April, while soybean meal is hedged further out, as the soybean stocks-to-use ratio is tighter on strong exports.

Russia and China

Sanderson said just 2.5 percent of the company's net sales in 2009 were exported to Russia, limiting its exposure to Russia's recent ban on poultry processed with chlorine.

That said, the company has begun processing birds at one plant without chlorine at a cost he estimated at about $20,000 per month. Sanderson said he was optimistic about talks between the United States and Russia that resume March. 1.

"No one can predict, but we are hopeful an agreement will be reached to allow U.S. product," said Sanderson.

China, however, poses bigger concerns and more uncertainty, given the complexity of the trade relationship across so many food and non-food products. Sanderson said the company will lobby to remove the current 64.5 percent tariff on its exports to China, which are largely wing tips and chicken paws, products for which there is no real domestic demand.

Sanderson said the company is currently selling these products to other markets, including Hong Kong and Vietnam, for about a 10 percent price discount.

Kinston and beyond

Sanderson said construction on the company's new plant in Kinston, N.C., is on track and will begin processing chickens in January 2011. The plant is expected to enable the company to process 15 percent more birds and 13 percent more pounds of poultry.

Asked if the company might invest in another plant after Kinston, Sanderson said because tray packs and big bird deboning have been its more profitable segments, "It would be a logical next step in that direction," adding, "We haven't even got Kinston up and running yet." But then he also added, "But we don't expect Kinston to be our last plant."

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