Deteriorating chicken breast prices and an “incredibly dismal” operating environment prompted BB&T Capital Markets analyst Heather Jones to slash her third-quarter estimate for Sanderson Farms to a loss of 86 cents a share.

Jones also trimmed her profit outlook for Tyson Foods.

“Boneless/skinless pricing has deteriorated considerably post July 4 and is at record lows for this time of year,” Jones wrote in a note to clients on Thursday.

As the industry enters a seasonally weak demand period, breast prices are down 30 percent from a year ago, and breast meat inventories at the end of May were about 35 percent above a year ago, she said.
“It is a jarring reality, especially in light of expectations going into 2011,” she wrote. “Although there have been indications of some shift in demand to chicken, it has been very modest.”

The stalled recovery in food service and a consumer preference for hamburgers has muted some menu shift to chicken, she said.

Producers are reducing egg sets on the order of 5 percent to 6 percent, but cuts of 8 percent or greater are needed due to “anemic demand and stubbornly high weights.”

Jones had expected Sanderson to earn 27 cents a share in the third quarter before she cut her forecast to a loss. For the full year, she expects the company to lose $3.72, steeper than her previous forecast for a loss of $1.93.

For Tyson, Jones reduced her third-quarter profit estimate to 33 cents a share from 44 cents previously and her full-year forecast to $1.82 a share from $2.03. The cuts also reflect deterioration in pork packing margins, she said.

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