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Contract broiler growers for Sanderson Farms are to receive an increase in their payment rate as the company implements a production cut that will remain in place indefinitely.
Chief Executive Officer Joe F. Sanderson Jr., said in a third quarter earnings call that the grower pay rate will be raised 0.25 cent per live pound to help offset a reduction in pounds of chickens grown on farms as a result of the company’s cut in production. Ten points of the pay increase will be permanent, and 15 points will be continued as long as the company’s production cuts are in effect.
Sanderson said the company’s normal fall production cut of 4% beginning in November would remain in place beyond January of 2012. He said the production cut is to remain in place until demand improves.
Like other U.S. chicken producers, Sanderson Farms’ profitability is being hurt by high grain costs and weak chicken pricing. Sanderson said that his company and the industry must respond by reducing the supply of chicken to help increase prices.
“We aren’t going to set any more eggs until we pick up a big account or we can’t supply our customers’ needs. We think demand improvement will require unemployment to drop,” he said.
Sanderson said two factors figured in the decision to raise the grower pay rates – the expected duration of the company’s production cuts, which may last longer than a year, and the fact that the company has contracts with many new growers who have large loans for their grow-out facilities.
The company’s average grower pay rate for big-bird flocks processed for deboning is 5.75 cents per live pound and 5.5 cents per live pound for flocks processed for tray-pack poultry, Sanderson said.
The grower pay increases will be across the board in all the company’s broiler grow-out operations.