CORRECTED - UPDATE 3-Pilgrim's Pride cuts chicken output
(Corrects to show that improvement in revenue is 12 to 15 cents per pound, not 12 to 15 percent, paragraph 4) (Adds that largest U.S. producer, paragraph 1; adds CEO, analyst comment, details; updates share prices; adds byline)
CHICAGO, March 12 (Reuters) - Pilgrim's Pride Corp PPC.N, the largest U.S. chicken producer, said on Wednesday it will close a chicken processing complex and nearly half of its U.S. chicken distribution centers as it copes with soaring feed costs and an oversupply of chickens.
The news sent Pilgrim's Pride shares, as well as those of other chicken companies, higher on the theory that less production will benefit the chicken industry.
"Clearly this news is positive for the group," Pablo Zuanic, food analyst at JP Morgan, said in a research note. "We expect by the summer combined cutbacks of about 3 percent by the industry."
Zuanic estimated the industry cutbacks could improve revenue per pound industry-wide by 12 to 15 cents.
In an interview with Reuters, Pilgrim's President and Chief Executive Officer Clint Rivers said closing the processing complex will reduce the company's production volume by about 2 percent.
The company plans to close its chicken processing complex in Siler City, North Carolina, as well as six of its 13 U.S. chicken distribution centers.
"I'm not surprised given the unusually high price of grain, which is restricting the ability to sell chicken domestically," Paul Aho, an economist with the consulting firm Poultry Perspective, said of the production cuts.
"This is one shoe dropping and we might see another shoe dropping," he said.
Pilgrim's Pride said it will take a charge of about $35 million, or 33 cents a share after taxes, for the closures, which will eliminate about 1,100 jobs, or some 2 percent of its work force.
The company is looking at potential changes at other production facilities, including possible closings, with decisions likely in 30 to 60 days, Rivers said in the interview.
"What is happening with feed ingredient prices, escalating as much as they have over the past year and half, it is causing us to look hard at some operations where we feel we have excess product or don't have our best cost structure," he said.
Chicken processors have been hit by higher feed costs as corn is increasingly used for ethanol.
"Part of the issue is the government continues to raise the mandate on ethanol so that we will pull another billion bushels of corn out of the system to make fuel. They don't have a policy in place in the event of a crop problem," he said.
U.S. government's policies encouraging ethanol production have angered livestock and meat producers, who blame those policies for the higher corn prices.
In promoting ethanol production and use, the government provides fuel makers a tax credit for blending ethanol into auto fuel. Also, the government has a tariff on imported ethanol.
Based on current commodity prices, Pilgrim's Pride estimated it would cost at least an additional $1.3 billion to feed its flocks in fiscal year 2008 than it would have cost two years ago.
While production cuts may help Pilgrim's and other chicken companies in the long run, they may continue to struggle with high feed prices and low chicken prices for much of 2008, said Poultry Perspective's Aho.
"I think the stock market is looking ahead to 2009, but the industry will have to get through 2008 to get there," he said.
In New York Stock Exchange trading, Pilgrim's Pride shares were up 61 cents, or 2.7 percent, at $23.44, while shares of No. 2 chicken producer Tyson Foods Inc (TSN.N) rose 54 cents, or 3.4 percent, to $16.60. Shares of Sanderson Farms Inc.'s (SAFM.O), the No. 4 chicken producer, were up $3.36, or 9.6 percent, at $38.26 in Nasdaq trading. (Additional reporting by Brad Dorfman; Editing by Maureen Bavdek, Gary Hill)
