Friday, March 14, 2008

Chickens roosting

Get ready for $5 a pound chicken.

Pilgrim's Pride makes no secret of why they are closing this chicken processing facility. They're doing it to drive up chicken prices.

Why? Because they cannot afford to sell chicken with the current supply-demand relationship due to high corn prices.

PITTSBURG, Texas, March 12 /PRNewswire-FirstCall/ -- Pilgrim's Pride Corporation (NYSE: PPC), today announced it will close a chicken processing complex and six of its 13 distribution centers in the United States in response to the crisis facing the U.S. chicken industry from soaring feed-ingredient costs resulting from corn-based ethanol production. These actions are part of a plan to curtail losses amid record-high costs for corn, soybean meal and other feed ingredients and an oversupply of chicken in the United States. The closings, which are expected to begin immediately and will be completed by June, will result in the elimination of approximately 1,100 jobs. Additionally, the Company announced that it is in the process of reviewing other production facilities for potential mix changes, closure and/or consolidation in response to current negative industry fundamentals.

[ ... ]

"Our Company and industry are struggling to cope with unprecedented increases in feed-ingredient costs this year due largely to the U.S. government's ill-advised policy of providing generous federal subsidies to corn-based ethanol blenders," said Clint Rivers, president and chief executive officer. "The cost burden is already enormous, and it's growing even larger. Based on current commodity futures markets, our company's total costs for corn and soybean meal to feed our flocks in fiscal 2008 would be more than $1.3 billion higher than what they were two years ago."

[ ... ]

Mr. Rivers added: "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. That portion of the demand for our products that exists solely at pricing levels below the cost of production is no longer a demand that this industry can continue to supply."

The unintended consequences of corn-based ethanol strikes again.

And again ... at the current $5/bushel, ethanol production costs $1.80/gallon for only the corn. When corn hits $9 a bushel this summer, that goes up to $3.20 per gallon for raw materials. Begging the question, what is driving $4.00 per gallon gasoline - crude oil or corn prices?

H/T - Belling

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