Top Poultry Companies are Hurting

US - Rising prices for maize and soybeans are putting even the large poultry companies in Virginia and on the Delmarva Peninsula under pressure.
calendar icon 28 July 2008
clock icon 5 minute read

Harvest shortfalls, global demand, the recent Midwest floods and the government's mandate for ethanol production have more than doubled the price of corn and soybeans over the past two years, according to Monterey Herald.

This has created a boon for the farmers of those crops but is hitting the bottom line of the poultry industries that depend on the feed to fatten their animals. Some poultry operations in Virginia and Delmarva and in other parts of the USA have cut production, a move that could push food prices higher. The cuts are also hurting contract farmers who depend on these companies for their livelihoods.

"This is probably the worst I've seen it ever," said Gary Lohr, who at 64 has been growing chickens on Valley Pike Farm in Rockingham County for nearly 50 years. "Everything across the board has gone up."

The pinch has led the meat industry to urge Congress to help lessen the demand for the crops by easing a renewable fuel standard passed by congressional Democrats and signed by President Bush late last year. The legislation mandates that 15 billion gallons of corn-based ethanol, or about 10 percent of motor fuel, be used by 2015.

Texas Governor, Rick Perry, a Republican, has filed a petition with the Environmental Protection Agency to cut the requirement in half, and Virginia poultry growers and others have lined up in support of him. On the other side are the renewable fuels lobby and corn farmers, who say that gasoline prices are the biggest factor in increasing food costs and that easing the mandate would exacerbate those costs for all Americans. A decision on the governor's petition is expected by the agency in August.

The outcome weighs heavily here. Towering above the rail tracks that traverse Harrisonburg — a country town in the Shenandoah Valley that is also home to James Madison University — are the feed mills for some of the biggest poultry companies in the country: Pilgrim's Pride, Cargill and Tyson Foods. The Virginia Poultry Growers Cooperative, a worker-owned turkey producer, was founded in nearby Hinton in 2004.

Every day, cargo trains bring tons of the Midwest soybeans and corn that provide a fresh diet for the valley's hungry beaks. At the Pilgrim's Pride mill, an industrial compound that is dusty with the powdery feed it produces, truck after truck lines up to carry the meal to the 240 chicken farms that grow the company's birds.

Pilgrim's posted a $111.5 million loss in the first quarter of the year, attributing the decline largely to higher feed costs and an inability to push up prices because of an oversupply of chickens. The company's stock has lost 67 percent of its value since August. In April, Pilgrim's said it would reduce production by 5 percent to decrease the bird supply and pass on costs to consumers.

As of June, meats such as beef and pork had risen 1 percent compared with the same month last year. The price for poultry rose 2.8 percent in the same span.

When it can, Pilgrim's is also shortening contracts with grocers, restaurants and others, from a year to 90 days, so that it can respond faster to rising prices in the months to come, said Ray Atkinson, a spokesman.

Other companies have taken similar measures.

Tyson Foods, which has scaled back operations in recent years, was not planning additional cuts, though it is raising prices, said Gary Mickelson, a company spokesman. Perdue, a privately held poultry company based in Salisbury, Md., initiated production cuts last year, said spokeswoman Julie DeYoung. She declined to say how steep the cuts were but said the company is also seeking to raise prices and shorten its contracts. The board of directors of Hinton's turkey cooperative announced a 25 percent production cut July 10, said James Mason, the president and general manager of the cooperative.

"Right now, we are trying to reduce our loss," he said. "We know every pound that we produce from now until the end of the year will be a huge loss."

The poultry industry is a key part of both the Shenandoah Valley and Delmarva Peninsula economies. Poultry companies in Shenandoah supported about 900 farmers and employed more than 5,000 workers in 2007, according to the Virginia Poultry Federation, a trade association. On Delmarva — which encompasses Delaware and parts of Maryland and Virginia — poultry operations supported about 1,900 farmers and nearly 15,000 workers last year, according to that area's association, the Delmarva Poultry Industry.

Most of the operations are vertically integrated, meaning that the big companies pay for the feed and bear most of the farm's risks in order to reap the rewards. Farmers are paid based on how efficiently they use the feed to deliver fattened birds at slaughter. They lose out when companies make reductions.

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