Source: MEATINGPLACE, 9/22/14

Chicken prices and margins remain solid, but demand typically slows in the fall, and supply is headed higher in 2015, Stephens analyst Farha Aslam said following Sanderson Farms’ announcement of a special dividend for shareholders last week. 

Sanderson is benefiting from a strong domestic chicken market and the decline in grain prices, which has driven strong cash flows that allowed the company to fund both a special dividend and an increase in the regular dividend rate, Aslam noted.

“The key metric the market is watching for in the near term is the degree to which the chicken industry will cut production in the fall given the seasonal slowdown in demand,” Aslam said in a note to clients.

Chicken supplies are expected to increase by 3 to 4 percent in 2015, she said. Supply is expected to be heavier in the second half of the year due to the fact that breeder eggs will become more available in late 2014 to early 2015, implying increased supply nine months later, she said.

Egg sets in the most current week were 201.1 million, up 3.5 percent from last year, she noted.

Prices remain strong due to constrained production and high-priced competing proteins, while feed costs have fallen significantly on expectations of a strong harvest.

Aslam maintained an equal-weight rating on Sanderson’s shares and $90 price target, saying the market has already priced in the company’s earnings potential.

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