Pilgrim's Pride Corp. said it will resume production at three idled U.S. chicken processing plants by spring 2012, stirring concern over excess supplies and helping send meat processor shares tumbling.
Re-opening the plants will allow Pilgrim’s Pride to keep pace with rising demand as the economy recovers, boosting its chicken production by 10 percent, or about 3.5 million birds a week, the Pittsburg, Tex.-based company said in a statement today.
Pilgrim's Pride and other chicken processors “have taken out significant production capacity over the past two years,” Pilgrim's Pride chief executive Don Jackson said in today’s statement.
“We fully believe that with the strengthening economy and improving fundamentals, consumer demand for chicken is increasing,” Jackson said.
The prospect of too much chicken, combined with a larger than expected quarterly loss, sent Pilgrim’s Pride shares down $2.50, or 22 percent, to $8.66 today.
Tyson Foods Inc., the top U.S. poultry producer, fell 4.4 percent, while beef and pork processor Smithfield Foods, Inc., fell 5.9 percent.
“I don’t think the market wants Pilgrim’s Pride to bring on supply,” said Steve Share, an analyst with Wisco Research LLC in Madison, Wis.
Shares of Tyson and other meat companies sold off today because the stock market overall was weak, Share said, “but also because investors fear Pilgrim’s Pride will be an irrational player in the chicken market.”
U.S. chicken production is already on track to expand 2.3 percent this year, based on government forecasts. The prospect of a glut of cheap chicken may be troublesome for beef and pork producers, who only recently saw animal prices return to profitable levels following two years of losses.
Last month, the USDA hiked its forecast for 2010 broiler production to 35.94 billion pounds, up from a previous estimate of 35.57 billion pounds and up from 2009 production of 35.13 billion pounds. Beef and pork production are projected to decline 0.8 percent and 2.9 percent, respectively, according to the USDA.
Pilgrim’s Pride, which emerged from bankruptcy in December, will restart its Douglas, Ga., plant by January 2011, the company said today. The company expects to re-open two others by spring 2012.
“Although production is slightly higher than a year ago, supplies remain fairly tight,” Jackson said in today’s statement.
“Feed costs appear to have stabilized and there are growing signs that the economy is improving,” Jackson said. “With many retailers and foodservice operators planning to feature chicken in the months ahead, demand is strengthening.”
Pilgrim’s Pride posted a net loss of $45.5 million for the three months ended March 28, compared with a loss of $58.8 million during the same period a year earlier, the company said today. Sales fell 3.3 percent to $1.643 billion.