Source: Chris Scott, MEATINGPLACE, 10/21/13


A recent drop in chicken prices – combined with lower prices for corn – is prompting two analysts to reassess their views on Sanderson Farms, including a lowering of operating earnings estimates for fiscal 2013.

Stephens Inc. analyst Farha Aslam noted that the chicken cycle is proving to be “shorter and less robust” than anticipated, and chicken pricing is falling much faster than earlier predicted as demand has been mixed and supply has been heavy.

As a result, she is reducing the fiscal 2013 operating earnings estimate to $5.60 a share from $5.95 a share with fourth-quarter earnings now expected to reach $1.90, down from $2.24 a share. Although industry profitability is expected to decline, Aslam says lower pricing will be offset by sharply lower grain cost next year.

Cheaper corn also figures prominently in today’s report on Sanderson Farms from Kenneth B. Zaslow at BMO Capital Markets. An anticipated 20-percent drop in feed costs from last year’s levels is likely to “more than offset” chicken price declines, even as chicken production growth is limited until January 2015 and higher beef prices push consumers more toward poultry in the coming year.

Zaslow also estimates that Sanderson Farms could increase its poultry processing capacity by 40 percent over the next five to six years through the construction of three new plants that are under consideration. However, he did not adjust upcoming earnings estimates from previous levels.

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