Demand for chicken has led Tyson Foods Inc. and competitors to increase production to placate shareholders who fear rising broiler prices will eventually take a bite out of company margins.
Mississippi-based Sanderson Farms on Thursday released worse-than-expected earnings attributed to increased domestic chicken production that drove prices down after Labor Day.
Ken Shea, Bloomberg senior analyst of food and beverage, said Sanderson's results "confirmed a lot of the worries investors have over chicken pricing the last few weeks."
Lower broiler prices paired with more chicken plants and unexpected disruptions -- like shifting consumer demand and hurricanes -- have frightened some investors away from agribusinesses, Shea said.
Tyson Foods, Sanderson Farms and several other producers have plans to build more chicken processing plants.
Broiler meat prices are projected to rise 2 percent as the year ends, according to the U.S. Department of Agriculture. Data showed poultry prices rose to 86 cents per pound for the week ending Nov. 10, up from the 78 cents per pound average this time last year.
"Prices will likely trend upwards after reaching the seasonal low point that typically occurs around [the holidays]," according to last month's USDA Livestock, Dairy and Poultry Outlook.
Joe F. Sanderson Jr., chief executive officer of Sanderson Farms, blamed worse-than-expected net income in part on smaller audiences for televised NFL games. Fewer people are buying chicken wings on game days, Sanderson said.
"The NFL has hurt the wing stores, and that is the traffic going through some of the wing places that we service," Sanderson said during a call with analysts.
Chicken wing sales have slumped 28 percent since September, when President Donald Trump took aim at NFL players who kneel during the pre-game playing of the national anthem, Bloomberg reported, citing USDA data.
Company shares fell 13 percent in trading Thursday after Sanderson's comments.
The shares continued to drop Friday, falling $2.54, or 1.7 percent, to close at $143.31. Shares of Pilgrim's Pride fell 52 cents, or 1.6 percent, to close Friday at $32.14. Tyson shares rose 57 cents to $81.28.
Under current leadership, Tyson Foods has fared well among analysts by diversifying production in directions that don't include chicken. Tyson Foods increased its stake last week in California-based Beyond Meat, known for its veggie patties.
"Tyson is in tune with how consumers are doing," Shea said. "They're the most diversified and have the biggest exposure to prepared foods."
The Springdale company's shares rose nearly 10 percent after posting better-than-expected earnings a month ago, due largely to low feed costs that bolstered its beef and chicken businesses. Tyson's revenue rose to $10.15 billion from $9.16 billion last year.
Sanderson Farms and Pilgrim's Pride are suffering for sticking with chicken, Shea said.
Business on 12/16/2017