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High flying wings cheer U.S. chicken companies
November 2, 2012 / 6:56 PM / in 5 years

High flying wings cheer U.S. chicken companies

* Chicken wings are industry’s No. 2 seller

* Prices go higher as supplies decline

* September chicken production down 8 pct vs year ago

By Robert Burgdorfer

CHICAGO, Nov. 2 (Reuters) - Chicken wings, those heavily seasoned tidbits served in sports bars and at-home football parties, are giving the chicken industry a lot to crow about as sales have largely weathered a recession and a doubling of prices.

In addition, industry forecasters predict continued strong demand as sports fans will nosh on wings at sports bars from now through the National Football League’s 2013 Super Bowl in February and college basketball’s March Madness.

Pilgrim’s Pride Corp, the No. 2 U.S. chicken producer, last week reported a better-than-expected quarterly profit, in part because of the nearly $1 per lb increase in wing prices versus a year earlier. Breast meat, the industry’s top revenue producer, only increased 20 cents.

Tyson Foods Inc, the No. 1 chicken producer, will report earnings later this month and Sanderson Farms Inc , the No. 4 producer, will report in December. Tyson produces beef, pork, and chicken, while Sanderson is strictly chicken. Analysts expect both to post better-than-year ago profits.

Privately held Perdue Farms is the No. 3 producer.

FEWER WINGS, HIGHER PRICES

The main reason for higher prices is there are fewer wings and other chicken products, because high feed prices have forced the industry to reduce production.

There were will be fewer wings and higher prices in 2013 as well as the chicken industry is expected to trim production some more. Pilgrim’s Pride told analysts after its earnings that U.S. chicken production in 2013 should be down 2 to 3 percent from 2012.

While wing prices are due to go higher in coming months and there will be fewer of them, analysts doubt demand will greatly suffer at restaurants and bars.

“Wings are relatively inelastic. People want to eat them, they are not so concerned about price,” said Paul Aho, an economist with the consulting firm Poultry Perspective.

Also, wings are fairly inexpensive when compared with beef, pork and chicken breast meat. That has kept demand strong despite the recession and high gasoline prices.

“Even if you lost your job, lost your house, I still think you would still want a beer and wings,” said Aho.

WINGS ARE NO. 2 SELLER

Ever since the Anchor Bar in Buffalo, New York, served up a batch of spicy wings in 1964 to launch this food craze, demand has escalated, gradually at first and then booming in the 1990s and beyond.

Once an industry byproduct, wings are now the chicken industry’s No. 2 seller behind breast meat. They account for 25 percent of the industry’s revenue, versus 17 percent eight years ago. Breast meat is 37 percent, down from 53 percent eight years ago.

The latest surge in wing prices is largely due to fewer of them, as the chicken industry has cut production to save on feed costs.

“It is all supply driven, demand (for wings) has remained surprisingly good,” Mike Cockrell, Sanderson Farms’ chief financial officer, said of the higher wing prices.

Sanderson Farms said it is operating at 94 percent of capacity and will probably stay there until conditions improve.

Feed, which is primarily corn and soybean meal, is the largest cost of production and prices have soared to record highs this year as the worst drought in half a century shrunk U.S. crops. Corn topped $8.40 a bushel and soybean meal surpassed $550 per ton. A year earlier, corn was $7.50 and soymeal about $380

“The full brunt of this high-priced grain will hit us in October, November and December,” said Mike Cockrell, chief financial officer at Sanderson Farms. “From what we hear, everybody has cut back.”

U.S. chicken production in September was down 12 percent from August and down 8 percent from a year earlier, according to the U.S. Agriculture Department.

HIGHER PRICES BITE INTO PROFITS

Buffalo Wild Wings, one of the largest wing-serving restaurant chains in the country selling 21 million a week, on Tuesday reported a 25 percent increase in revenue for the quarter ended in late September, but its profit shrunk as the wings it buys from chicken companies cost more.

Wings, on average cost the company $1.97 per lb during that quarter, a 70 percent increase from a year earlier. Since then, the cost has increased to $2.07, it said during a conference call with analysts.

To adjust, the company said it has raised prices on wings and is considering flexible serving sizes rather than fixed quantities.

At a Chicago Buffalo Wild Wings restaurant, a serving of six now costs $5.99, up about $1.50 from four months ago, said manager Brian Ruth.

“Wings are definitely the top seller,” said Ruth.

The price increase has not slowed sales during weekend football games, but there has been some push back during Tuesday specials, when wings went to 60 cents from 45 cents in just a few months.

“People stopped coming in on those days,” he said.

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