The unkindest cut of all

The announcement this week that Pilgrim’s Pride Corporation would shutter its Siler City, NC plant continues the series of consolidations and rationalizations which will become more common during the coming year. Pilgrim acquired the complex from Gold Kist in the 2006 purchase and thereafter identified inefficiencies in scale and incompatibility with their existing product range and market demand. Pilgrim’s Pride, along with other U.S. broiler integrators, is experiencing the effect of a recessionary economy and unprecedented escalation in the cost of feed. The company posted a loss of $32 million on sales of $2.09 billion for the first quarter of fiscal 2008 ended December 29^th 2007. Ken Pilgrim, the company chairman, commented that results were influenced by “the significant challenge posed by higher feed ingredient costs which have climbed sharply over the past few months and currently show no signs of abating in 2008.” He cited a 24 percent increase in feed cost for the quarter over the corresponding period in FY 2007, representing $157 million.

The move by Pilgrim to terminate the operation of the complex along with closure of six distribution centers is a preemptive measure to conserve financial resources despite the immediate after-tax charges of $22 million against earnings. Clint Rivers the newly-appointed President and CEO projects that an increase in feed cost amounting to $1.3 billion will be incurred in FY 2008, compared to FY 2006. He expressed the opinion that retraction in industry output would be necessary to avoid overproduction in a saturated market. The projections of a 2 percent  to 3 percent growth in output and market demand issued by the USDA-Economic Research Service are largely discounted by industry insiders as optimistic and inconsistent with production costs in an inflationary environment and concurrent retraction in spending by consumers.

Although the Pilgrim announcement refers to closure of a plant and redundancy of 830 workers the actual impact on the small community is directly related to the direct and indirect economic presence of the company in the area. The closure will obviously affect breeder and growout contractors. Although the latest NCC weekly newsletter cites a company spokesperson that the 95 contractors within 50 miles of the plant would not be terminated, Clint Rivers stated in the official press release that “when industry fundamentals improve, portions of the live production capabilities associated with the Siler City operation may be redeployed to supply other company facilities in that region of the country”. Quoted by the Durham News and Observer prior to the official announcement, Kay Dobey, President of the N.C. Poultry Growers Association stated “I imagine that there will be growers in this area sweating bullets.”