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Sanderson Farms Q1 results reflect challenges

Sanderson Farms Q1 results reflect challenges

Company says domestic and global picture provides optimism for 2020.

Sanderson Farms reported net sales for the first quarter of fiscal 2020 of $823.1 million, compared with $743.4 million for the same period a year ago. The company reported a net loss of $38.6 million, or $1.76 per share, for the 2020 first quarter, compared with a net loss of $17.8 million, or 82 cents per share, for the 2019 first quarter.

“Our results for the first quarter reflect continued challenging market conditions, with market prices for boneless breast meat produced at our plants that process larger birds for foodservice customers reaching record-low levels in January,” Sanderson chairman and chief executive officer Joe Sanderson Jr. said. “However, average prices for tray pack products sold to retail grocery store customers were slightly higher when compared with the same period a year ago on improved product mix, and prices continue to reflect a good supply-and-demand balance in that market. Demand and prices for jumbo wings strengthened seasonally during the quarter, and market prices averaged above last year’s first quarter.”

According to the company, overall market prices for poultry products were lower this period versus a year ago. Compared with the first quarter of 2019, the average realized prices of the retail tray pack products were approximately 0.6% higher, boneless breast meat prices were approximately 3.4% lower, bulk leg quarter prices increased by approximately 22.6% and jumbo wing prices were 3.1% higher. The company’s average feed cost per pound of poultry products processed was 6.3% higher than the first quarter of fiscal 2019, and prices paid during the quarter for corn and soybean meal, Sanderson Farms' primary feed ingredients, increased 10.1% and decreased 2.3%, respectively, compared with the first quarter of 2019.

“Both corn and soybean balance tables are healthy heading into the 2020 planting season, and we believe the world has an adequate supply of both grains,” Sanderson said. “Had we priced all of our grain needs for fiscal 2020 at yesterday’s Chicago Board of Trade futures contract prices, cash paid for feed grains during fiscal 2020 on fiscal 2019 volumes would be relatively flat with fiscal 2019.”

Still, he said there are several reasons to remain optimistic about poultry markets in 2020.

“While market prices for boneless breast meat produced for foodservice customers remain under pressure and market conditions during our first fiscal quarter were very challenging, we continue to be positive about our opportunities in both the domestic and export markets over the next year,” he said.

With respect to domestic markets, the company expects to see continued favorable demand in retail grocery stores.

“Chicken remains favorably priced compared to other proteins, and we believe that dynamic will continue. We also believe we will see improved demand from foodservice customers, supported by an increase in promotional activity for chicken at quick-serve restaurants,” Sanderson said.

On the export side, Sanderson mentioned African swine fever and the significant protein deficit it has created that should ultimately benefit poultry markets in the U.S.

“China lifted its nearly five-year ban on the import of United States poultry at the end of calendar 2019, and we resumed shipments to China almost immediately,” he said. “Since the ban was lifted, we have shipped to China or have received orders from our customers in China for approximately 18.0 million lb. of chicken products, including dark meat parts.”

Additionally, he said the company continues to receive strong indications of interest for its products from buyers in China. Further, the company was pleased to see the recent announcement regarding the reduction of tariffs on U.S. poultry, which should further support business.

Also, while coronavirus is currently disrupting the markets, depressing demand, negatively affecting shipping and supply chain logistics and slowing China’s economic growth rate, the company believes demand for protein from China is strong and that it will benefit in 2020 from the return to an open market.

Last, Sanderson said the company continues to move toward full production at its new Tyler, Texas, plant and added that the startup has gone well.

“We expect to reach full production during our second fiscal quarter, and we look forward to the opportunities the plant will create,” he said.

TAGS: Business
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