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$7 Corn Makes Chicken Producer Pinch Pennies

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Pilgrim’s Pride}

CEO of major

chicken processor thinks high-priced corn is here to stay

by bob burgdorfer

High-speed dryers will replace paper towels in company washrooms at Pilgrim’s Pride Corp. as the chicken producer looks to save money as the price of feed corn rises.

Rival Tyson Foods Inc. is replacing freezers with more efficient models, streamlining production, and reducing product movement between plants to help offset feed costs.

U.S. chickens consume more than 1.2 billion bushels of corn a year, or about 10 per cent of the U.S. crop, and with corn prices at nearly $7 per bushel, almost double what they were a year ago, that can hurt profits.

Pilgrim’s Pride and Tyson estimate that it will cost each of them about $500 million more annually to feed their chickens.

Pilgrim’s Pride, the No. 2 U.S. chicken producer behind Tyson, initiated a $400-million cost-savings program that includes more efficient production methods, new products, and high-tech blow-dryers in washrooms. Pilgrim’s Pride is majority owned by Brazilian meat company JBS SA.

Pilgrim’s chief executive Bill Lovette was inspired to replace paper towels during a recent plant visit.

“I asked the question, ‘How much money do we spend on paper towels across the enterprise on an annual basis?’ And the answer came back fairly quickly, about $3 million,” he told investors during a webcast presentation on Wednesday at the J.P. Morgan Global Protein Conference.

Lovette found another $17 million in annual savings by recycling shipping pallets.

In an earlier presentation at the conference, Tyson Foods’ chief operating officer Jim Lochner said $7 corn may be here to stay.

Corn prices have increased because more of the grain is exported and used to make ethanol.

The companies also are quick to snap up corn when prices drop.

Tyson bought more when corn futures fell nearly nine per cent to about $6.20 at the Chicago Board of Trade in the days after the March 11 Japanese earthquake.

“We did use that in a conservative fashion to extend our coverage into our Q4, which is the July, August, September period,” Tyson’s chief operating officer Jim Lochner said of the corn purchases.

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