Record-high costs for feed continue to hammer the U.S. chicken industry and has led Pilgrim's Pride, ppc the largest U.S. chicken company, to announce Wednesday that it will ax 1,100 jobs and immediately close seven U.S. facilities.
Based in Pittsburg, Texas, Pilgrim's Pride said it will close a chicken-processing complex in Siler City, N.C., and distribution centers in Oskaloosa, Iowa; Plant City and Pompano Beach, Fla.; Jackson, Miss.; Nashville; and Cincinnati.
Pilgrim's Pride and other food producers blame the higher feed prices on U.S. government policies and subsidies that encourage ethanol production. Making the biofuel ethanol requires millions of bushels of corn, and that added demand is driving up prices for the grain.
But Gary Karp, executive vice president at Technomic, a food-industry consulting firm in Chicago, says that an array of economic forces has led to the rapid rise in prices for corn, soybeans and other crops over the past year or so.
Worldwide grain supplies, hurt by poor weather, are at a 25-to-30-year low. The weaker U.S. dollar is making grain exports more attractive to other countries. Lastly, global demand for animal feed is soaring in developing nations, and the demand from the U.S. ethanol industry is putting even more pressure on prices.
"The outlook based on the world demand for grain is going to continue to be high," Karp says. "(Producers) are going to cut back because they're losing money for every chicken they grow."
Clint Rivers, Pilgrim Pride's CEO, said in a statement that the company's total costs for corn and soybean meal to feed its flocks in 2008 could hit $1.3 billion more than two years ago.
Rivers warned that food producers will be forced to scale back production of chickens and raise prices. That will feed inflation and weaken consumers' demand for foods, he said.
"We simply must find ways to pass along these higher costs," Rivers said. "While the decision to close a facility is always very difficult, we believe the actions we are announcing today are absolutely necessary to help bring supply and demand into better balance."
Consumers are likely to feel the impact three to six months from now, with higher prices for some foods in supermarkets and restaurants, according to Karp.
Pilgrim's Pride said it will record $35 million in charges for the plant closings. The company will decide whether to close or consolidate other plants within 30 to 60 days, Rivers told Reuters.
Wall Street liked the cutbacks. Pilgrim Pride's stock rose 3% to close at $23.50 on the New York Stock Exchange. Shares of Sanderson Farms safmleaped 10% to $38.37, and Tyson Foods' tsastock price climbed 2% to $16.45.
Pilgrim's Pride posted $7.6 billion in revenue last year, employs 54,500 people and runs 50 U.S. facilities. This month, it sold its turkey production facility in New Oxford, Pa., to New Oxford Foods.