Source: MEATINGPLACE, 8/25/11

Sanderson Farms Inc. on Thursday posted a large third-quarter loss and said it would extend a planned production cut until demand for poultry improves.

The Laurel, Miss., poultry producer attributed the quarterly loss to a significant drop in poultry market prices, continued sluggish demand from food service customers, an oversupply of poultry in the market and sharply higher costs for corn and soybean meal.

Because it expects higher grain costs to persist for the rest of 2011 and restaurant dining to remain sluggish until more consumers have jobs again, the company plans to extend scheduled November and December holiday production cuts into calendar year 2012.

“We will leave that production cut in place until demand from our customers improves,” Sanderson Chairman and Chief Executive Joe F. Sanderson Jr. said.

Sanderson Farms reported a net loss of $55.7 million, or $2.51 per share, for the quarter ended July 31, compared with net income of $36.1 million, or $1.55 a share, a year earlier.

Fiscal third-quarter sales rose 4.5 percent to $511.2 million, just below analysts' average forecast of $512.9 million, according to Thomson Reuters I/B/E/S.

Production cuts
On a call with analysts, Sanderson said the production cuts planned to start in November will amount to a 4 percent reduction in the company’s volume.

The cuts will not impact the company’s growers, because the company will increase their pay to compensate for the reduction in volume, Sanderson said.

Egg sets have fallen for 16 consecutive weeks and are now averaging 6 percent below a year ago, indicating fewer chickens on the market in the fall, but demand also will weaken seasonally after Labor Day, Sanderson said.

A 6 percent cut on the hatchery side may not be enough to compensate for the expected drop in demand after Labor Day, Sanderson cautioned. “It would not surprise me if we don’t see a further reduction in egg sets come October, November,” Sanderson said.

The company said it is on schedule with development of a new production complex in Kinston, N.C., which is now running at almost two-thirds capacity. Plans are for the complex to be at full production in January.
Sanderson said boneless breast meat prices were down 22 percent from a year earlier in the third quarter, while jumbo wing prices fell 27.5 percent. At the same time, cash prices for corn delivered to the company jumped 84.7 percent in the quarter from a year ago and soybean meal prices rose 25.8 percent.

While demand for chicken at grocery stores held steady during the quarter, demand in its food service unit remained soft, while export demand was steady, the company said.

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