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Chicken turnaround taking time to build
Story Date: 3/1/2012
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Source: MEATINGPLACE, 2/29/12
The much-anticipated chicken recovery sputtered as the year started, but the market is working through the excess supply, analysts said in the wake of Sanderson Farms’ larger-than-expected quarterly loss.
The market weakened in late January and early February as higher bird weights increased production, but improving breast meat prices suggest that excess has been cleaned up in the past week, BB&T Capital Markets analyst Heather Jones said in a note to clients.
“It does concern us that market demand seems very tenuous and any increase in production weighs down the market. However, that concern is mitigated somewhat by the fact that the industry seems very disciplined at present,” she wrote.
Sanderson Farms management expects price appreciation going forward due to seasonal strength and believes total industry production will be down much more than USDA has projected, Jones said.
“We concur as the current breeder flock and pullet placement trends point to significant declines. We believe the USDA projection assumes meaningful expansion in late 2012, which we view as unlikely given balance sheets and very high old crop corn costs,” she said.
J.P. Morgan analyst Ken Goldman said he viewed chicken industry fundamentals as increasingly positive, noting Sanderson said its margins were improving in January and February despite the disappointing quarterly loss. Leg quarter prices should rise in March due to robust export demand, and breast prices are improving, he noted.
BMO Capital Markets analyst Kenneth Zaslow expressed concern that the chicken margin recovery may stall at moderate profit levels. “The recent modest recovery in chicken margins provides little to no incentive for another round of production cuts,” he said.
The extent of the recovery of breast meat prices is reliant on the uncertain improvement in macroeconomic trends, and the potential for a large U.S. corn crop and lower input costs may be offset by production expansion, he wrote in a note.
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