Sanderson Farms plans to increase production during the remainder of its 2013 fiscal year, returning to processing at full capacity. After processing less fresh chicken during the first half of the year, the company looks to process 2.9 percent more poultry in 2013 than it did in 2012.
Joe Sanderson Jr., chairman and CEO of Sanderson Farms, and Lampkin Butts, chief operating officer, spoke of the company's plans for increased production during a quarterly conference call with shareholders on May 30.
Returning to full capacity
Since the fall of 2012, Sanderson Farms has been running at 6 percent below capacity at all plants in response to the high cost of feed. With better feed supplies anticipated, Sanderson said the company will soon resume running at capacity.
Sanderson Farms is keeping its eye on factors "beyond our control" that affect the poultry industry, Sanderson said, including not only the corn and soybean crops, but also fears of avian influenza in China and macroeconomic conditions that influence people's purchasing decisions. Once it is satisfied those factors will not be a hindrance to production and profitability, the company will resume full production.
Processing to pick up each quarter of 2013
Butts believes Sanderson Farms will process about 3.05 billion pounds of fresh chicken this fiscal year, a year-over-year increase of about 2.9 percent. An estimated 794.7 million pounds will be processed in the third fiscal quarter, and about 813.7 million pounds are expected to be processed during the fourth fiscal quarter. These estimates could be impacted by weather, bird performance and other factors, Butts cautioned.
The company's second quarter of 2013 saw 705.8 million pounds of chicken processed, a 2.8 percent decrease from the 726.3 million pounds recorded in the same quarter the previous year. However, Butts said Sanderson Farms still exceeded its expectations for the quarter, which ended April 30.
"We previously projected we would process 704.4 million pounds during the quarter," said Butts. "While we actually processed slightly fewer head than we projected, that miss was offset by higher live weights and yields than we expected. These numbers reflect the additional pounds processed at our Kingston, N.C., plant, offset by the 6 percent production cut at all our plants we announced last fall."
Sanderson said the company was not yet ready to offer projections for fiscal year 2014.
Demand poses challenges with bird weights
The size of the birds processed will offer one challenge in attaining Sanderson Farms' goal of increased production. Weights may have been a little higher than Butts expected in the second quarter, but they have still been lower than the company would like. Sanderson believes this problem is impacting both his company and the greater industry. The consumer demand for chicken has prompted processors to produce as much meat as possible, which means some birds are slaughtered before they reach optimum weights.
"Processors were running all-out," Sanderson said. "Our weights were a little light, frankly. We've been short all month, and we needed to put some age on our chickens, particularly our big birds or deboning birds. My guess is other processors may be in the same boat. I would not be surprised if weights may not be as heavy in May as they were in April because processors were running all out to keep up with this demand we've had."
Heat can also prevent chickens from reaching the desired live weight, but Sanderson does not consider that a big factor for April and May. Sanderson said during the conference call that temperatures had not yet reached 90 degrees at Laurel, Miss., where the company is headquartered. However, heat could be more of a factor in June and July, he added.
Plans for new plant progressing
Sanderson Farms' overall production will increase once a proposed processing facility in Palestine, Texas, is built. The company has not yet said when construction will begin, but that announcement could come in the not-too-distant future.
"The timing of that new project is subject to the health of our balance sheet, the quality of our performance at our existing plants, this year's grain crop and final approval from our board of directors," said Sanderson. "We have made progress paying down our debt, and I expect to continue that this summer. I'm satisfied our balance sheet is in good shape. We will watch the progress of the grain crops and talk with our board later this summer, regarding the start date."
The company had earlier stated it is also considering options to build in North Carolina once the Palestine plant is running. While Sanderson did not address plans beyond Palestine during the conference call, he did say they want to continue to expand.
"Our appetite is to build processing plants," he said.