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…”

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

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• Beef up $3.87, 12.4% – beef is America’s #1 source of protein in sales ($74.3 billion in 2010, 59.6 pounds per capita), but the inventory of cattle has dropped to 92 million, a level last seen 53 years ago.
• Chicken up 3.9%
• Turkey up 5.4%
• Veal up 6.7%
• Pork up 10%

The article also contains some interesting statistics and descriptions of the beef business. In particular, beef producers are blaming rising input costs for the prices they have passed on to consumers:

“‘There’s inflation in everything we buy to run our business,’ said Bill Donald, president of the National Cattlemen’s Beef Association, an advocacy group for beef producers.”

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Food prices may jump as much as 6 percent in 2010, Swanson said. The U.S. Department of Agriculture on Nov. 25 forecast 3 percent to 4 percent food inflation next year, up from an estimated 1.5 percent to 2.5 percent in 2009.

Producers of cattle, hogs, dairy cows and poultry cut output after a jump in feed costs last year, reducing supplies as demand for meat is rising at home and abroad, Swanson said. Corn, the main source of animal feed, will rally next year because of record demand for grain to make ethanol, he said.

“Protein inflation is going to be much higher than people are anticipating,” Swanson said Dec. 9 in an interview from Minneapolis. “Corn is a proxy for feed costs, and right now the value of all meat and dairy output is below the price of feed on a long-term relative basis.”

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