Analyst: Outlook brighter for larger poultry firms

by The City Wire staff ( 4 views 

With three large poultry companies located in Northwest Arkansas and another one just a few miles south in Fort Smith, concerns of drought and persistently higher grain costs have been warranted in recent months.

And while the largest players in the industry recently managed to return profits in spite of $7 corn, that isn’t the case for the industry as a whole.

Stephens Inc. analyst Farha Aslam reports 45% of the chicken industry lost money in September, with a 14-cent-per-pound spread between the top and bottom players. October and November are expected to be less profitable months.

Most companies are expected to be in the red for November through January, Aslam recently wrote in a note to investors.

She said larger firms like Springdale-based Tyson Foods and its competitors Sanderson Farms and Pilgrim’s Pride all stand to benefit from strong retail demand for chicken in spite of profit challenges still faced by the industry as a whole.

Sentiment in the industry is that production cuts will be slow to materialize, particularly given the two largest players, Tyson and Pilgrim’s Pride, have shown little desire to cut pounds produced. If profitability continues to struggle in the first quarter of calendar 2013, a moderate production cut may materialize, she said.

“There is cautious optimism among poultry producers, which generally does not lead to production cuts,” Aslam wrote.

Robert Moskow, analyst with Credit Suisse, recently said the discipline seen in egg sets and chick placements this fall means there will there be less chicken on the market in 2013. He expects chicken prices will move higher on tighter supplies if the production remains 2% to 3% below the levels of a year ago.

Consumers have seen an 8.3% increase in wholesale chicken prices since January of this year. Boneless breast prices have risen roughly 7% to $1.57 per pound as of this week (Dec. 5). Leg quarters have remained constant this year at roughly 53 cents a pound, but wings prices are up 8.5% since January, according to Georgia Dock pricing.

Aslam notes Tyson should benefit from longer term growth in international sales as the company has refocused on expansion in Brazil, China, India and a lesser extent in Mexico.

In other local poultry news, Simmons Foods said it is putting its pet food operation in Siloam Springs on hiatus as it retools the plant for a different line of products. The company will temporarily relocate workers to other local operations until the new lines are back in operation.

Todd Simmons, chief operating officer for the poultry company, says this operation does not have any connection with a cutback in poultry, but is simply a new market opportunity with the pet food customer base.