Feed costs to stay ‘very high’, says Cal-Maine

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Cal-Maine Foods highlighted the "more challenging environment" facing the US poultry industry as the egg producer unveiled a slump of two-thirds in earnings, blamed on feed prices set to "remain very high".

The egg producer said it achieved $1.12 a dozen for its eggs in the three months to May 28 – up nearly 4 cents year on year – boosted by underlying market strength besides a continuing shift by the group to higher-priced, premium produce.

"The higher retail demand associated with a late Easter holiday and a slightly smaller national flock helped boost egg prices," Dolph Baker, the Cal-Maine chief executive, said.

However, higher feed costs, lifted by a jump to record corn prices, "have continued to escalate, and were up 12 cents per dozen compared with the same period a year ago, which affected our profitability".

A slump in earnings to $7.3m, from $21.0m, reflected a "more challenging environment", he said, adding that that feed costs will "remain very high and volatile".

Price prospects

The data represent the latest in a series of signs that the US poultry industry is feeling the pinch from elevated feed bills after a surprisingly strong start to 2011, with broiler meat production rising 4.8% year on year in the first five months.

Starting in May, the level of eggs placed in incubators turned sharply lower, falling 6% year on year in the latest US Department of Agriculture data.

The USDA last week said it expected broiler meat output to turn negative in the current quarter.

In the egg industry, the department forecast prices remaining "above the previous year" in the July-to-September period, supported by a decline in the flock of laying hens for table eggs.

"However, egg prices are expected to average $1.09-1.17 per dozen in fourth quarter, down somewhat from the $1.23 per dozen in fourth-quarter 2010, as a sluggish economy is expected to have a depressing effect on the normal fourth-quarter strengthening in egg prices," USDA analyst Rachel Johnson said.

Management changes

Cal-Maine highlighted its continued stress on higher-priced specialty eggs, which accounted for more than one-quarter of sales in the latest quarter, up nearly two percentage points year on year.

And is also flagged said that management changes, including the appointment of Sherman Miller as chief operating officer, would "enhance our ability to execute our growth strategy, with the goal of further improving our operating performance in fiscal 2012".

Analysts expect Cal-Maine to report earnings per share of $2.45 in the year ending May next year, compared with $2.55 reported for the latest year.

The group’s earnings for the three months to May 28, the fourth quarter of its fiscal year, equated to $0.30 a share, narrowly ahead of analysts’ forecasts.

Cal-Maine shares closed down 2 cents at $35.49.


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