Sector Snap: Chicken producers jump

Shares of chicken producers soared Thursday after the U.S. Department of Agriculture reported data showing the industry is taking more steps to cut production _ a move analysts said could lead to higher chicken prices and better profits.

BMO Capital Markets analyst Kenneth Zaslow also boosted his rating on poultry producer Sanderson Farms Inc. to "Outperform" from "Market Perform". The upgrade likely also helped improve investors' sentiment on the sector.

Zaslow said with feed costs still exceeding chicken prices, producers will have to accelerate production cuts, which will improve the outlook for both Sanderson Farms and the entire industry.

Feed is made with corn, which has skyrocketed in price in the past year. The higher prices have led to far higher animal feed costs for companies, cutting into profits. If companies cut production of chicken _ meaning fewer eggs are set to hatch _ supply would be restricted, theoretically resulting in higher retail chicken prices.

Yesterday, the USDA reported a nearly 4 percent drop in the number of eggs ready to be hatched in hatcheries from a year ago. The number, called "egg sets," is an indicator of how many chickens will soon be ready for slaughter.

Zaslow said the data could lead to better retail prices and a corresponding boost in producers' profits and stock prices.

Stephens Inc. analyst Farha Aslam agreed, saying the egg sets could indicate more expensive chicken in the months to come.

"Egg sets are a two to three month leading indicator of chicken supplies, and these latest results could lead to strong chicken pricing later this summer into the fall," the analyst said.

Aslam also said Sanderson Farms was "particularly well-positioned given it is the industry's most efficient operator and has one of the strongest balance sheets."

Shares of Sanderson Farms jumped $3, or 8.1 percent, to $40.21 in afternoon trading. Shares of chicken producer Pilgrim's Pride Corp., meanwhile, soared $2.39, or 18.5 percent, to $15.32. Tyson Foods Inc. shares rose 41 cents, or 2.7 percent, to $15.35.