October 9, 2012 / 10:41 PM / 7 years ago

UPDATE 1-Zacky Farms files for bankruptcy, blames feed costs

(Adds details on bankruptcy filing, adds background, statement from company)

By P.J. Huffstutter

CHICAGO, Oct 9 (Reuters) - California poultry processor Zacky Farms LLC filed for bankruptcy protection on Tuesday while outlining plans to sell the company which has been crippled by high feed costs following the worst drought in half a century.

The company - whose roots in the poultry industry date back to the 1920s - said it employs about 1,500 people in Fresno, Los Angeles, Tulare, Kings and San Joaquin counties.

It listed between $50 million to $100 million in assets, with debts in the same range, according to court filings.

The documents, filed on Monday in U.S. Bankruptcy Court in the Eastern District of California in Sacramento , showed that the company’s largest unsecured creditors are Western Milling, a feed company whom Zacky Farms owes about $6.6 million, and Foster Farms LLC, the Livingston, California-based poultry producer, which is owed about $1.2 million.

Zacky Farms, a privately held, family-owned operation, dates back to Samuel Zacky opening a chicken shop in Los Angeles in 1928, according to the company website.

Company officials said in a statement Tuesday that normal operations and customer service will continue.

They said the entire poultry industry has been strained by historically high feed prices which led Zacky Farms to incur “significant operating losses that have depleted its liquidity and working capital position” in its chicken and turkey businesses.

It is a strain that has been felt across the nation’s livestock industry, as this summer’s drought led to a disappointing corn harvest. Larger producers are scouring the Midwest to snap up whatever feed they can find, or are sinking tens of millions of dollars into importing corn from Brazil.

But across the livestock world, many farmers now fear there simply will not be enough feed available to meet industry needs.

In the pork industry, the slaughter of sows - adult female hogs that are the building blocks of a herd - is happening at record rates, swelling pork supplies and sending prices down.

In the cattle industry, some ranchers have liquidated their herds, eroding beef supplies. That, in turn, has industry analysts and U.S. Department of Agriculture forecasters predicting that beef and veal prices will jump as much as 5 percent at the meat counter next year.

Zacky Farms will be the eighth poultry firm to be sold, entered into Chapter 11 bankruptcy or shut down altogether since 2011, according to data from trade group National Chicken Council.

According to court documents, Zacky Farms needs to borrow $71 million, at a 6 percent interest rate, in order to continue operating under a debtor-in-possession financing facility from The Lillian Zacky Family Trust.

Among other things, the company said it needs the funds to continue to pay for the feed used by farmers it has under contract to raise poultry.

The loan, which must be approved by the bankruptcy court, will require “the commencement of an immediate sale process” to sell Zacky Farms as a going concern, according to court documents filed on Tuesday.

The case is Zacky Farms, LLC, U.S. Bankruptcy Court for the Eastern District of California, 12-37961. (Reporting By P.J. Huffstutter; editing by Jim Marshall)

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