Source:  MEATINGPLACE.COM, 5/6/10

Shares of Tyson Foods and Sanderson Farms slumped Thursday along with Pilgrim's Pride after the latter said it would raise output by restarting three chicken plants idled in the recession, prompting concern the industry risks expanding supply too quickly.

Pilgrim's shares sank 24 percent to $8.45, Sanderson fell about 8 percent to $53.06 and Tyson shed about 5 percent to $18.41.

"There seems to be heightened sense of fear for the chicken industry," said BMO Capital Markets analyst Kenneth Zaslow.

Wall Street analysts asked several questions on Pilgrim's first-quarter earnings call after the announcement to probe further the company's rationale for boosting production as the U.S. economy slowly gets back on its feet.

Excess supply hurt the industry as the economy slid deeper into recession and helped push Pilgrim's into bankruptcy in December 2008. After shuttering several facilities and selling a majority stake to JBS SA of Brazil, Pilgrim's emerged from bankruptcy protection this past December.

Industry getting ahead of itself?

On the call, Pilgrim's Chief Executive Don Jackson defended his plans to re-open three plants over the next two years, asserting the industry is not getting ahead of itself. The first to re-open will be a big-bird deboning facility in Douglas, Ga., in January 2011.

"We believe that the demand is there," Jackson said. "If you look at all of those increases, ours as well as the rest of the industry, I still think those increases are consistent with what we and the industry are seeing by way of demand."

In addition to Pilgrim's expansion, Sanderson Farms is constructing a new poultry complex in Kinston, N.C., and has said it wants to build a new big-bird deboning facility in Goldsboro, N.C. Smaller processors have also announced expansion plans.

Jackson said Pilgrim's, which reported a first-quarter loss on Thursday, is not keeping up with the rest of the industry on pricing but expects to be able to raise prices and fix that problem this year.

Poultry industry fundamentals are positive, he said, including improving demand, higher market prices for most chicken products that could hold up through fall, higher prices for competing proteins, lower feed costs compared with a year ago and continued tight supplies and low cold storage inventories.

"My general belief is that the economy is going to begin to strengthen, and I think that will help maintain demand and price going forward," Jackson said.

Zaslow said it would be unrealistic to expect chicken production not to increase given that demand is improving and there is now potential for recovery in the foodservice sector.

"In our view, the increase appears relatively in line with likely demand," Zaslow said.

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