Pilgrim's Pride to go ahead with cutback

PITTSBURG, TEXAS - Pilgrim's Pride Corporation today said it remains committed to maintaining its previously announced production cutback, despite encouraging news last week from the U.S. Department of Agriculture (USDA) that corn acreage is expected to increase sharply this year.
calendar icon 3 April 2007
clock icon 4 minute read

Pilgrim's Pride said its previously announced 5% production cutback has been fully implemented on a pro forma basis, including the recently acquired Gold Kist operations.

Last July, Pilgrim's Pride reduced weekly processing by 3.0%. In January, the company increased its cutback in order to achieve a 5% year-over-year reduction. Pilgrim's Pride said current production is running slightly above the 5.0% reduction target when compared to year-ago levels.

"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 USDA 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."

Late last week, the USDA issued a report predicting that, in response to near-record corn prices and surging demand for ethanol, U.S. farmers will plant 90.5 million acres of corn this year, the highest level in 60 years and a 15% increase over 2006 plantings. Some observers believe that big increase will provide some welcome relief to chicken producers, since an increased corn supply would reduce feed costs.

But Lonnie "Bo" Pilgrim, Pilgrim's Pride's chairman and co-founder, urged caution.

"I believe this projection is sending a false sense of hope through our industry. 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 USDA estimates will decline 11 percent. 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 sixty 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," Mr. Pilgrim said.

He also cautioned that, according to the USDA advance planting reports, the number of acres actually planted was lower than projections in 13 of the past 20 years.

"There is no question that the ill-advised public policy encouraging corn- based ethanol production has had a significant detrimental effect on our industry, as well as on other meat protein producers that rely on corn as their primary animal feed. With 114 corn-based ethanol refineries already built and 80 more on the way, ethanol's effect on corn prices will likely be with us for several years to come. Now more than ever, it is important for us to execute on our strategic plan and maintain our commitment to the previously announced production cutbacks," Mr. Pilgrim said.

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