US Poultry integrator Sanderson Farms Inc posted a better-than-expected quarterly profit on this week, buoyed by higher prices for chicken wings and other products, and said it would further reduce production to protect earnings from rising feed costs.
The worst US drought in more than half a century has sent the cost of corn and other animal feed soaring, and the news from Sanderson illustrates how that will translate into costlier food for consumers.
Shares in the poultry company jumped 9% on the strong results and word that it began trimming production by 2% earlier this month.
"With considerable uncertainty and a high degree of fear now priced into the market for corn and soybean meal," Sanderson is not locking in long-term prices for grain, Chairman and Chief Executive Joe Sanderson told Reuters in a phone call.
Based on current prices Sanderson's feed grain costs would be 10% higher this fiscal year (about $61.1 million).
"While market prices for chicken remain higher than they were last year and have strengthened over the past few weeks, they are not high enough to offset what we now expect to be significantly higher input costs during the coming months," Sanderson said.
Next to cutting down production Sanderson has put on ice plans for a new plant in North Carolina "until market fundamentals improve, including sufficient confidence that the global supply of feed grains will be adequate to meet world demand at reasonable prices".