Moody's cuts credit ratings on Pilgrim's Pride

Moody's Investors Service on Friday cut its credit ratings on chicken producer Pilgrim's Pride Corp., citing far higher animal feed costs.

Moody's said it downgraded the company's corporate family and probability of default ratings to "B1," from "Ba3." Both ratings are considered speculative grade.

The ratings service said the ratings outlook is stable.

Moody's said the cuts reflect its expectation that margins, cash flow and credit metrics will "significantly erode" in fiscal 2008 because of high feed grain prices.

Animal feed has become far more expensive in the past year due to skyrocketing prices for corn, a key ingredient. The higher costs have taken a bite out of profits at meat producers and led some to cut back on production.

Then, in June, the price of corn jumped even higher due to Midwest floods that led to concerns about crop damage and tighter supplies.

Moody's said before that price run-up, Pilgrim's Pride had already expected its 2008 feed costs would rise by more than $800 million over the prior year. Even though the company decided to reduce its production to try to boost retail chicken prices and offset the costs, Moody's said that effort was "unlikely to prevent a material reduction in near term operating profitability and cash flow."

Pilgrim's Pride shares fell 31 cents to $14.25 in morning trading.