Pilgrims bankruptcy could help OK Foods

A Fitch report released Tuesday could give hope to beleaguered regional poultry companies like Fort Smith-based OK Foods and even the Tyson Foods of the food processing world.

Fitch has said a bankruptcy by Pittsburg, Texas-based Pilgrims Pride would help the poultry sector by reducing the amount of chicken on the market. Fewer tons of poultry would support higher prices, according to Fitch.

OK Foods could use the help. Sources tell The City Wire that the regional, fully-integrated poultry processor has laid off many high-level vice presidents in the past few weeks, and could lay off hundreds of other employees if chicken prices remain weak. The company employs more than 5,000. OK Foods, like most poultry companies, is having to deal with the profit-margin destroying effect of high feed, fuel and other input prices and low chicken prices.

The Fort Smith company has twice announced cutbacks in production in 2008.

"O.K. Foods made this decision based on the record high prices for corn and soybean meal being driven by the United States government’s flawed mandated ethanol policies and historic flooding in the Midwest," the company said in a July statement after announcing a 7.5 percent reduction in the number of broiler eggs it would place.

OK Foods did not respond to inquiries from The City Wire about the executive layoffs.

Pilgrims Pride, the largest chicken processor in the country with many facilities in Arkansas, has said it will find a “long-term solution to improve our liquidity.”

However, Fitch analyst Carla Norfleet Taylor said Tuesday that a Pilgrims bankruptcy is “pretty inevitable.” Taylor said a bankruptcy would result in a major shift in the industry that would help Springdale-based Tyson Foods and other poultry companies survive the near-term financial challenges of the current economic environment.

Reuters has an interesting story on the Fitch comments.