U.S. chicken industry still vulnerable

CHICAGO Tue Mar 15, 2011 5:26am IST

Sanderson Farms CEO Joe Sanderson speaks during the Reuters Food and Agriculture Summit in Chicago March 14, 2011. REUTERS/Jeff Haynes

Sanderson Farms CEO Joe Sanderson speaks during the Reuters Food and Agriculture Summit in Chicago March 14, 2011.

Credit: Reuters/Jeff Haynes

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CHICAGO (Reuters) - The U.S. poultry industry could suffer "substantial reductions in production" this year if crop problems drive feed prices higher, the chief executive of the No. 4 U.S. chicken producer said on Monday.

Despite some poultry price increases, struggling U.S. chicken producers are still losing money due to historically high feed costs, Joe Sanderson, CEO of Sanderson Farms (SAFM.O), told the Reuters Food and Agriculture Summit.

"The environment's changed some, but it's not enough to take the majority of our industry out of red ink," Sanderson said.

U.S. chickens eat about 1.2 billion bushels of U.S. corn a year, or 9 percent of the crop. So when the price of corn sped past $7 per bushel this year, that hurt chicken producers.

In February, Sanderson Farms, one of the most efficient producers, reported a larger-than-expected quarterly loss due to an excess of chicken and higher feed costs.

The company has delayed plans to build a new plant in North Carolina amid doubts about corn prices and availability.

FOOD SERVICE WEAK, EXPORTS IMPROVING

Sanderson Farms and other chicken companies have also been hurt by slow restaurant sales as the recession has kept more people eating at home.

Restaurant dining will not improve until the job market improves, said Sanderson.

While the weak economy has not yet caused domestic consumers to shift to lower-priced chicken from beef or pork, it may be causing cost-conscious countries to shift to chicken from pork, he said.

Chicken exports have increased the past few months pushing up the price of leg quarters, a key export item, about 10 cents a pound.

"Our export partners in eastern Europe believe it because of the price of pork, the high price of pork," Sanderson said o the switch to chicken. "They think chicken exports are going to very good the rest of the year."

For the year, U.S. chicken exports in 2011 are projected to be 6.65 billion lbs. That is down about 2 percent from 2010 largely because of less going to once top-buyer Russia, which is trying to produce more domestically.

"The rest of the market, including Mexico, Cuba and eastern Europe is very good and very strong," Sanderson said.

In February, Sanderson signed a $500 million revolving credit agreement, which should protect it from being pressured by lenders, should feed costs stay high.

"The bankers are the ones that really initiate the cutbacks," he said. "We just signed a new bank agreement in February so they won't be calling me."

(Reporting by Bob Burgdorfer and Karl Plume; editing by Matthew Lewis, Jim Marshall and David Gregorio)