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Chicken sector is sizzling, but how long will it last?
Story Date: 6/3/2013
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Source: MEATINGPLACE, 5/31/13
The chicken market is on fire, analysts agree, but they differ in where they see it headed next.
Industry profits are on track to hit a record in May because of “extraordinary” fundamentals, writes BMO Capital Markets analyst Kenneth Zaslow. The favorable conditions include strong pricing, good export demand, a limited breeding flock and the unlikelihood that production will expand near term.
But Zaslow kept a “market perform” rating on shares of Sanderson Farms following the company’s surprisingly strong second-quarter profit, citing a number of concerns. He’s worried that export demand will moderate due to the high price of leg quarters, and says boneless breast prices are showing signs of peaking.
“Third, while near-term production may be constrained, the chicken industry likely will begin to accelerate production levels as soon as pullets become available,” Zaslow wrote in a note to clients. He also thinks it is too early in the crop cycle to assume lower feed costs are sustainable.
Stephens Inc. analyst Farha Aslam boosted her rating on Sanderson shares to “overweight,” encouraged by the strong demand for chicken and limited supply.
“Expansion is being limited by a tight supply of breeder and pullet flocks, as well as strong demand for hatching eggs from Mexico as that country struggles with Avian Influenza,” Aslam advised her clients.
Ken Goldman of J.P. Morgan is also remaining “neutral” on Sanderson, saying he is unconvinced that corn prices will drop to the degree futures markets are forecasting. But he said he would buy the stock today, given the “impressive momentum in the chicken industry and our belief that further earnings beats are afoot.”
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