UPDATE 1-U.S. meat companies' shares rise after upgrades

(Adds economist comment, corn price details, byline; updates share prices)

CHICAGO, March 19 (Reuters) - Shares of some of the nation’s top meat companies bounded higher on Wednesday after a brokerage firm said conditions appeared to be improving in the beef and chicken markets.

A sharp drop in corn prices also appeared to be encouraging buying of meat company shares, an economist said.

Shares of No. 4 U.S. chicken producer Sanderson Farms Inc SAFM.O jumped as much as 10.5 percent, while shares of top chicken producer Pilgrim's Pride Corp PPC.N and meat giant Tyson Foods TSN.N had strong but lesser gains after the research report by JP Morgan.

Shares of hog and pork producer Smithfield Foods Inc SFD.N were also higher, even though JP Morgan said it may be early 2009 before the hog market recovers.

“There are signs of an improving chicken cycle, and Sanderson Farms may be the best way to gain exposure to the sector, given it is highly leveraged to commodity chicken prices,” Pablo Zuanic, JP Morgan food analyst, said in the report.

Zuanic raised his rating on Sanderson Farms to “overweight” from “neutral” and lifted Tyson to “neutral” from “underweight.”

Meat company shares likely got an additional lift from a sharp drop in corn prices, said Paul Aho, an economist and consultant with Poultry Perspective.

“The commodities have been hammered the last few days. There is a feeling out there that commodities have peaked,” said Aho. “People think corn will be cheap. I don’t think that will happen because the fundamentals of ethanol are much more important.”

Corn is an important feed for cattle, chickens and hogs, and prices for the grain have soared in the past year, largely due to strong demand to make the biofuel ethanol.

Corn prices have been trending lower recently as wealthy investment funds appeared to be selling long positions.

In Wednesday trading at the Chicago Board of Trade, the corn futures price for May delivery 3KC8 was down the 20-cent daily limit at $5.27-1/4 per bushel.

In morning trade, Sanderson Farms shares reached $41.07 on the Nasdaq, their highest level in almost five months.

“The chicken industry has proven it can pass on higher feed costs by adjusting supplies, and we are starting to see signs of easing supplies,” said Zuanic.

Last week, Pilgrim’s Pride said it was closing a production facility and several distribution centers, which would reduce its chicken production by about 2 percent.

Tyson, which produces beef, pork and chicken, should benefit from the improvement in the chicken market, said Zuanic. Also, Tyson recently ended cattle slaughter at a Kansas beef plant, which Zuanic said has helped conditions in beef.

In afternoon trading on the New York Stock Exchange, shares of Pilgrim’s Pride were up 72 cents, or 3.25 percent, at $22.85; Tyson shares were 45 cents, or 2.7 percent, at $17.01, and Smithfield shares were up 60 cents, or 2.3 percent, at $26.88.

Sanderson Farms shares were up $3.20, or 8.6 percent, at $40.35. (Reporting by Bob Burgdorfer; Editing by Brian Moss and John Wallace)