Pilgrim's Pride recommits to production cuts

by FoodBusinessNews.net Staff
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PITTSBURG, TEXAS – Despite what the U.S. Department of Agriculture expects to be the most acreage dedicated to corn crops in more than 60 years, Pilgrim's Pride Corp. plans to stick to its plan of cutting poultry production by 5% for the remainder of 2007.

Surging feed costs have cut into the profitability of the poultry market in recent months, precipitating the company’s decision to cut production. While the recent plantings forecast have led to corn price setbacks, Pilgrim’s Pride executives continued to suggest that market conditions have not changed course enough to warrant reversing the decision to cut poultry production.

"We believe the production cuts implemented by Pilgrim's Pride and other chicken processors have begun to help strike a better balance between production and demand, yet market prices are still not where they need to be given either the current cost of feed ingredients or those projected by the U.S.D.A. crop report last week," said O.B. Goolsby Jr., president and chief executive officer. "Accordingly, the short-term operating environment remains challenging due to higher feed-ingredient prices, but we remain confident that continued demand for high-quality, convenient and low-fat meat proteins will position Pilgrim's Pride for profitable long-term growth as conditions in the chicken market continue to improve."

This past January, the company committed to achieving a 5% year-over-year production cut, and executives said its current production is running slightly above the 5% reduction target compared to this past year.

According to the U.S.D.A., farmers intend to plant 90,454,000 acres of corn this year, which if realized would be the most area planted to corn since 95,475,000 acres in 1944. Intended corn plantings were up 15% from 78,327,000 acres planted in 2006 and were well above average pre-report trade expectations of 88.1 million acres.

Lonnie "Bo" Pilgrim, Pilgrim's Pride's chairman and co-founder doesn’t necessarily think the forecasted increase will be enough to offset the additional demand for corn caused in large part by a spike in ethanol production.

"I believe this projection is sending a false sense of hope through our industry," he said. "While the projected increase in corn production is encouraging, it comes in part at the expense of soybean production, another key feed ingredient for chicken, which the U.S.D.A. estimates will decline 11%. Additionally, this projected growth in corn acreage does little more than cover the expected increase in demand caused by surging corn-based ethanol production, potentially leaving the projected ending stocks for corn at concerning levels.

"Over the past 60 years, I've seen a lot of optimistic projections that gave hope to farmers and processors, only to be followed by a devastating drought or flooding that wiped out production."

He also said history indicates advance planting reports are typically well short of acreage actually planted.

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