Source:  Lisa M. Keefe, MEATINGPLACE.COM, 9/21/10

The relatively high prices in the corn futures markets are taking their toll on processors: JPMorgan equity analyst Ken Goldman today lowered his rating on Sanderson Farms Inc., having just upgraded the stock in May, and lowered his expectation for the company’s fiscal earnings because of the higher input costs.

“Though many positives — the re-opening of Russia, lighter bird weights, etc. — have taken place since … May, the recent spike in corn prices and futures have made a constructive outlook for [fiscal year 2011] more difficult to maintain,” Goldman wrote in a note to investors. He went on to “recommend continued prudence when investing in the industry until corn prices settle.”

In fact, Goldman said his calculations indicate that every 10 cent change in the price of corn translates to a 20-to-25-cent change on Sanderson’s bottom line. He now expects Sanderson’s earnings in its fiscal 2011 to be $4.04 per share, down from $5.11 per share.

Over the summer, every corn futures contract between December 2010 and December 2012 had risen in price between 13 percent and more than 30 percent, Goldman said. While chicken prices are high relative to prices over the last couple of years, birds’ weights are rising and added capacity overall promises to lower those prices.

For the chicken industry overall, Goldman said, he still sees profitability through calendar 2011, even if corn remains above $5 a bushel.

Meanwhile, higher corn prices combined with Friday’s Cattle on Feed report, which put the number of cattle on feed at the high end of expectations, have lowered prices on cattle futures contracts, analysts Len Stein and Steve Mayer note in their Daily Livestock Report. But, tipping the scales in the other direction was Tuesday’s Crop Progress report, which indicates that the corn harvest is well ahead of last year and also the five-year average, and that the quality of the corn is high.

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