WRAPUP 1-Pricier US chicken coming to a store near you

CHICAGO Thu May 15, 2008 5:18pm EDT

CHICAGO May 15 (Reuters) - U.S. consumers can add chicken to the list of foods that will cost more this year.

Prices on everything from soup to nuts have moved higher as food companies pass on to consumers sharply higher costs for grain, meat, and fuel.

Chief executives at the two largest U.S. chicken companies said on Thursday that chicken prices must go higher to offset the industry's higher production costs.

A swift rise in the price of corn, a major feed stock, has been particularly troublesome.

Chicken companies have been unable to raise chicken prices fast enough to offset the higher feed costs, Richard Bond, chief executive at Tyson Foods Inc (TSN.N), said on Thursday.

"We have attained some (higher) pricing but not at the same pace as our inputs have increased, especially in chicken. The lag of higher priced corn is just now coming through the products that we are taking to market," Bond said during his webcast presentation at the BMO Capital Markets agriculture and protein conference in New York City.

Tyson is the largest U.S. meat company and the second largest U.S. chicken producer. Feed costs for the company should be $600 million higher this fiscal year than the previous year, said Bond.

Corn prices have soared to a record $6.50 per bushel this year amid strong demand from exporters, livestock and chicken producers, and the makers of the biofuel ethanol.

SUPPLY REDUCED, CONTRACTS CHANGED

In order to raise chicken prices enough to offset these higher costs, Pilgrim's Pride Corp PPC.N, the largest U.S. chicken producer, has cut production 5 percent and shortened contract terms with customers.

"Prices of grain have escalated so quickly this last fall and into the first part of the year that we have been unable to efficiently pass those prices along as quickly as they have gone up," Pilgrim's Chief Executive Clint Rivers told the BMO conference.

To more quickly pass on the higher costs, Pilgrims just recently shortened contract terms with customers to 90 to 180 days from previous year-long terms.

While Pilgrim's has reduced production 5 percent, Rivers said the industry, as a whole, needs to cut production 3 to 4 percent to generate the higher prices needed to cover costs.

Recently the industry has reduced by 2 to 3 percent the number of eggs and young chicks placed in the production cycle, but it will be early this summer before that reduced supply reaches grocery stores.

"In the summertime we usually have our strongest demand for chicken, so typically you would not expect to be seeing egg sets drop this time of year. So I think it is pretty significant," said Rivers.

"We should begin to see some supply affected by this (drop in egg sets) in June," he said. (Reporting by Bob Burgdorfer; editing by Jim Marshall)