Approximately half of the quarterly loss was attributed to a non-recurring settlement of litigation. The Chairman, Joe F. Sanderson Jr. Ascribed the result to a combination of unprecedented rises in the price of corn and soybean meal and a general escalation in the costs of fuel, power and other inputs. The unit realization from high-margin products including breast fillets and wings for both consumer and restaurant markets has declined sharply as a result of a retraction in non-essential spending. In forecasting annual profit Sanderson invoked “miracles and angels” to make previously projected numbers.

Pilgrim’s Pride Corporation, the Nation’s largest broiler producer and the other pure play in the space, was impacted adversely by the Sanderson Farms announcement, dropping 11 percent on Tuesday to close at $13.07 (52 week range of $11.25 to $22.12) . This company has also been affected by the concurrent rise in feed costs and an erosion of margins. A further factor relates to the uncertainty of continued export volume to the Russian Federation. Approximately 10 percent of Pilgrim’s Pride revenue is derived from exports but presumably not all to the Russian Federation. The Kremlin has decreed increased self-sufficiency in domestic poultry meat at the expense of imports, 75 percent of which are derived from the U.S. During the first half of 2008, Russia which represented 26  percent of export volume, imported 435,000 metric tons of broiler parts with a total value of $394 million or $905 per metric ton (41 cents per lb.).

Tyson Foods the second largest U.S. producer, deriving about one third of revenue from broilers, dropped 6 percent on Tuesday to close at $15.32 (52-week range of $12.81 to $22.12). This was in response to an exodus by investors from the sector following the Sanderson results.

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Most U.S. broiler integrators have announced plans to close small operations, consolidate complexes and further processing plants and to reduce output by 3 percent to 5 percent to maximize efficiency.

Bond ratings agencies are scrutinizing the broiler and red meat producers in relation to risk and capacity. The outcome will depend on the size of the 2008 grain harvest which appears to be more promising than in June and whether companies will be able to pass on increased costs to consumers, which appears unlikely in the prevailing economy.

In contrast to the U.S. broiler producers, Perdigao of Brazil was largely unaffected on Tuesday, dropping 0.5 percent to $47.64 (52 week range of $35.00 to $66.81). Bachoco the largest broiler producer in Mexico remained virtually unchanged at $29.81 (52 week range of $25.26 to $33.50).