August 28, 2008

A poultry producer who gets it?

Sanderson Farms released it's third quarter results this week. The fourth-largest poultry producer reported a $3.6 million loss but avoided playing the blame game -- unlike some of the bigger bird companies who freely (and ignorantly) toss around anti-ethanol adjectives.

Joe F. Sanderson Jr., chairman and chief executive officer, said the company's results reflect "difficult market conditions for our industry," and even though retail and export demand for chicken was strong during the quarter, "casual dining and food service customers have been affected by a significant decline in restaurant traffic due to weak economic conditions and higher fuel prices."

This acknowledgment, that high fuel costs impact the dollars consumers have to spend, is important and very correct.

Yes, Sanderson also noted that its feed costs are up, but he didn't blame biofuels or government policies supporting them. He just said the higher costs and the imbalance between domestic supply and demand in the food service markets "resulted in much lower margins."

He concluded by saying: ...having been through volatile cycles, we remain confident that the fundamental rules of supply and demand will work to maintain industry profitability over the long term.

Well said.

Sanderson's talk of restaurants reminded me of a blog entry by DTN's Chris Clayton. He wrote about the world's largest food distributor: Sysco. In a Wall Street Journal article about the company, it said that higher costs for "fruit, vegetables and dairy products have been the main drivers of inflation in the sector," and not "center of the plate meat products."

"Meat producers have not been the biggest contributors to inflation," the article quoted Dick Schnieders, Sysco's chairman and CEO. Schnieders added that his company was working with customers, which are largely the nation's restaurant industry, to lower costs -- by redesigning menus and using cheaper ingredients.

Schneiders said that some restaurant chains had not raised menu prices for seven or eight years!

Chris Clayton observed: Of course, it also raises the question of whether these restaurants got by for seven or eight years without raising prices because they were able to live on flat-priced commodities for nearly a decade as well.

No comments:

Post a Comment