Pilgrim’s Pride looks to increase prices in the face of soaring input costs

Pilgrim’s Price (PPC) is the second-largest chicken producer in the world. It emerged from bankruptcy at the end of 2009 just as the economy was finally recovering from the recession. Over a year later, the company continues to struggle, especially with soaring costs for feed and energy.

PPC disappointed the market with its first quarter financial performance. The report contained some important information on market prices and industry cost pressures as well as the prospect for higher prices in the future. Key quotes below (emphasis mine):

“Market prices for breast meat averaged $1.26 per pound, down 10% from a year ago, while market prices for wings fell 38%, to $1.00 per pound.”

“Export demand remained very strong during the quarter, with volume rising 90% to an all-time record for the period and sales increasing by a similar amount. The company attributed export gains to the lower value of the dollar as well as chicken’s value proposition versus higher-priced beef and pork in international markets.”

“…the company has recently succeeded in negotiating additional price increases with some of its retail and foodservice customers in response to continued increases in feed costs.”

“Despite now having covered nearly all of our anticipated grain needs through the end of 2011, we are facing at least $500 million in higher feed costs this year. Our customers recognize that the unrelenting upward march of corn and soybean meal is placing extreme pressure on chicken producers and that there must be some sharing of the cost burden in order to ensure a viable business model. To achieve that, we will continue to look at further price increases and will execute structural changes in our book of business with regard to fixed versus market-based pricing…”

Pilgrim's Pride's stock has not fared well since emerging from bankruptcy

Pilgrim's Pride's stock has not fared well since emerging from bankruptcy

Note: PPC declined 9.5% in response to the first quarter’s earnings results.

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