Source:  Rita Jane Gabbett, MEATINGPLACE.COM, 5/25/10

Sanderson Farms Chairman and CEO Joe Sanderson expects some seasonal pricing increases this summer, continued soft foodservice demand for poultry and no big jump in industry production over the coming months.

Demand, prices

In a conference call following its second quarter earnings results, Sanderson said company sales have increased because the company picked up some new customers, rather than resulting from an increase in demand from existing ones.

"Our regular customers are flat," he said, noting that over the past two years, most customers have not purchased as much poultry as they initially projected they would buy. He added, however, that one large processor has been buying more boneless breast meat since March.

Sanderson reiterated his belief that foodservice demand will not improve until employment does. That said, he acknowledged those who remain employed may be starting to feel more comfortable going out to eat. He said that trend, along with higher prices for competing proteins, will likely improve prices this summer.

For leg quarters, Sanderson said demand in the United States has increased, but added, "Our export group doesn't see any improvement (in prices) without Russia."

On Jan. 1, Russia banned imports of poultry treated with chlorine, effectively shutting the United States out of a previously lucrative market for leg quarters.

Production, input costs

Sanderson is not concerned about a large increase in U.S. poultry production in reaction to rising prices. "A lot of people out there don't want a lot more chickens," he said, citing bank constraints on lending, uncertainty about the Chinese and Russian export markets and residual fears from 2008 when production costs upended many processors' balance sheets.

He acknowledged feed costs have gone down, more so for corn than for soybean meal. "We have not been aggressive in pricing our corn needs," he said, but added that soybean supplies could tighten this summer.

Earnings

The Laurel, Miss.-based company reported net income was $35.1 million, or $1.62 per fully diluted share, compared with net income of $26.2 million, or $1.25 per diluted share in the second quarter of fiscal 2009. Net sales for the second quarter of fiscal 2010 rose 14 percent to $487.1 million from $426.8 million in the same period a year ago.

Earnings beat Wall Street expectations. Analysts on average were expecting $1.44 per share, according to Thomson Reuters. Nevertheless, Sanderson shares fell along with the broader market decline, trading around $52.05 per share, down 3.3 percent, in midday trade on the Nasdaq.

Plant expansion

Sanderson said the company's new Kinston, N.C., complex is on schedule to begin processing chickens in January, 2011. The first breeder flock was placed in April. Kinston, along with the planned construction of a new big bird deboning facility in Goldsboro, N.C., announced in March, will add 30 percent to the company's capacity.

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