SAFM

Sanderson Farms, Inc. (SAFM)

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Sanderson Farms, Inc. (SAFM)

F1Q09 (Qtr End 01/31/09) Earnings Call Transcript

February 26, 2009 11:00 am ET

Executives

Joe Sanderson – Chairman and CEO

Lampkin Butts – President and COO

Mike Cockrell – Treasurer and CFO

Analysts

Ken Goldman – JP Morgan

Christina McGlone – Deutsche Bank

Heather Jones – BB&T Capital Markets

Farha Aslam – Stephens Inc.

Ken Zaslow – BMO Capital Markets

Chris Bledsoe – Barclays

Jeff Linroth – Leaving It Better

David Bowie [ph] – Elk Partners [ph]

Christine McCracken – Cleveland Research

Presentation

Operator

Good day, and welcome to the Sanderson Farms first quarter 2009 conference call. Today’s call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Mr. Joe Sanderson, Chairman and Chief Executive Officer. Please go ahead, sir.

Joe Sanderson

Thank you. Good morning and welcome to Sanderson Farms’ first quarter conference call. With me on the call today are Lampkin Butts and Mike Cockrell. We issued a news release this morning announcing a net loss of $6.7 million or $0.33 per share for our first fiscal quarter of 2009. This compares to net income of $6.2 million or $0.30 per share during the last year’s first quarter.

I will begin the call with brief comments about general market conditions and grain cost. I will then turn the call over to Lampkin and Mike for a more detailed account of the quarter. Before we make any further comments, I’ll like to ask Mike to give the cautionary statement regarding forward-looking statements.

Mike Cockrell

Thank you, Joe, and good morning to everyone. This morning’s call will contain forward-looking statements about the business, financial condition, and prospects of the company. The actual performance of the company could differ materially from that indicated by the forward-looking statements because of various risks and uncertainties. These risks and uncertainties are described in our most recent annual report on Form 10-K and in the company’s quarterly report on Form 10-Q filed with the SEC for the quarter ended January 31, 2009, and that 10-Q was filed this morning.

Joe Sanderson

Thank you, Mike. Our financial results for the first fiscal quarter reflect a poultry market that improved when compared to where we were when the quarter started on November 1, but a poultry market that was softer than last year’s first quarter. Our results also reflect higher costs for corn and soybean meal when compared to last year's first quarter, although grain cost were lower during our fourth quarter of fiscal 2008. As we expected, the markets for both corn and soybean meal have remained historically high, although they have moved down from their 2008 highs. Demand for feed grain has fallen with the world economy as animal feeders cut production, ethanol prices followed crude oil lower, and export customers import less grains.

The corn and soybean markets will be soon be bidding for acres for the 2009 crop, and the markets will be closely watching the March 31 Planting Intention Report to see how farmers are going to react to the current market environment. Regardless of that report, however, most believe the markets are going to remain high relative to historical prices, but remain well below levels we saw last year. The only consistent factor in grain markets for the past year has been volatility. We started the 2008 crop year with Midwest floods that delayed planting. That led to fears last summer that the country would run out of corn. These fears pushed corn prices above $8 per bushel and led to talk about $10 corn. Then the American farmer produced a good crop and the economy began to disintegrate. Demand from animal feeders, ethanol producers and export customers all moved lower. The bottom line at the end of the harvest and after adjusting for reduced demand is that there is a comfortable carry out of both corn and soybeans although soy is some tighter.

As a result, most expect more acres of soybeans in 2009 at the expense of corn, cotton and other crops. Because demand for corn has continued to deteriorate as animal feeders reduced production, and many ethanol producers remained below breakeven, many believe there might be further downside to corn. On the other hand, corn is expected to lose acres to soybeans which could tighten corn supplies into 2010. We have none of our corn needs priced past April but have been more aggressive pricing our soybean meal needs.

In December we reported that we had priced our – had we priced our needs on that day, our cost would have been $142 million less this fiscal year than last fiscal year. Based on our cost through the first quarter, what we priced so far and what price we could lock in for the balance of the year, that decrease today would be just over $166 million. That decrease reflects both the lower unit cost of corn and soybean meal and our reduced needs based on our production cuts. This decrease will translate into a reduction in cost of $0.06 per dressed pound for fiscal 2009.

Last year's increased grain cost of $239 million added $0.066 per dressed pound to the cost of chicken. And 2007’s increase of $154 million added $0.0625 per pound. We are poised to get $0.06 of the $0.13 increase back in 2009. However for the industry and Sanderson farms to return to what some describe as normalized margins, we still need significant help from the chicken market. Overall demand for chicken in the retail grocery market chicken segment continues to be strong. This strength is evident in the Georgia Dock market price.

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