Source:  MEATINGPLACE.COM, 10/27/10

J.P. Morgan has sharply reduced its 2011 profit forecasts for Sanderson Farms and Tyson Foods due to skyrocketing corn futures prices.

Analyst Ken Goldman advised investors to be cautious on Sanderson, which did not hedge feed costs as did Tyson and Smithfield.

“Corn is the culprit,” Goldman wrote in a note to clients. “After the Oct. 10 quarter, Sanderson will start feeding $5+ corn to chickens. Tyson doesn’t use $5 corn until Jan. 11, Smithfield until May 11.”

Goldman cut his 2011 earnings estimate for Sanderson to $2.09 a share from $4.04. For Tyson, the estimate drops to $1.57 a share from $1.90 for 2011 profits.

Goldman said producers have been getting ahead of themselves with the amount of eggs being laid. But he expects production cuts in the spring months will help support chicken prices beginning in the second half of 2011.

Higher pork and beef prices will boost chicken, but not by a great degree, because consumers have shown reluctance to trade down to chicken over the past year even though pork and beef have been relatively expensive, Goldman said.

For more stories, go to www.meatingplace.com.