No. 1 chicken producer Pilgrim’s Pride files for Chapter 11
Pilgrim’s,
which produces 25% of U.S. broilers, suffered a triple whammy of large
debt, high feed prices and lower prices for chicken amid weakening
demand in the U.S. and abroad.
“Pilgrim’s Pride stretched and got caught,” says Len Steiner, owner of meat and food consulting firm Steiner Consulting.com.
While
other producers are in stronger financial shape, the hangover from high
feed costs and weak demand is affecting all producers, he says.
Pilgrim’s
Pride shares fell 46% Monday to 62 cents before trading was halted
pending its announcement. Shares of No. 2 Tyson Foods (TSN) fell 10% to $6.03.
Steiner
expects higher wholesale prices for chicken in the coming months as
producers continue to cut production. It’s unclear whether those
increases will get to consumers given the weak economy, he says.
Pilgrim’s
Pride’s filing wasn’t a surprise, but there was hope last week that it
could be avoided. It said in September it would post a significant loss
in its fiscal fourth quarter. Pilgrim’s Pride, which employs 48,000,
says it’ll operate as usual while it restructures.
It
hasn’t said whether it will cut production. JPMorgan Securities analyst
Ken Goldman said in a research note Monday that cuts were likely. A
steep reduction would help the “downtrodden industry” lift prices, he
wrote in a note last month.
The economics
facing the industry have been brutal. Corn prices were more than triple
their five-year average in June, Steiner says. Meanwhile, wholesale
chicken prices were off their five-year average by 16.2%.
Corn prices have fallen 55% since then, and producers, except for Tyson, have cut production.
The
Chapter 11 filing will help the company to sell assets, because buyers
will have a clearer view of Pilgrim’s future. Its substantial Mexican
operations weren’t included in the filing.
