Sanderson Farms: A Leg Up on the Great Chicken Wing Crisis

Recently, I wrote about how Joe Sanderson's prayers had been answered by the recovery in his chicken business. Much of that recovery came from the booming chicken wing business. Last quarter, wing prices climbed 62.6% over a year earlier.

Per the company's August conference call:

"Jumbo wings averaged $0.132 per pound, up 62.6% from the average of $0.812 per pound during last year’s third quarter. Wing prices have remained relatively high all summer and usually strengthen as we move into the football season."

Who can get that kind of price increase in this economy? Just the chicken guys such as Sanderson Farms (SAFM) and Tyson Foods (TSN). Last quarter, SAFM creamed analyst estimates by 28 cents. Does SAFM do it again? Yes.

Cagle (CGL.A), a much smaller chicken producer, in its November 6 SEC report noted "boneless breast increased 6%, breast tenders increased 22%, wings increased 49%, drums decreased 14%, leg quarters were 24% lower and whole birds...were 6% less."

It appears wing prices are still flying out of the consumer's reach.

Why the run up in price? According to Jennie Geisler: "Wing prices took off over the summer and shot to the sky with the beginning of football season."

This occurred after chicken production had been crushed: Pilgrim's Pride (PGPDQ.PK) chopped its output in bankruptcy, other producers curtailed their business with last year's nasty economy and high corn prices. Geisler goes on to say: "All this happened just as more national fast-food chains started adding wings to their menus, including Pizza Hut, 7 Eleven and KFC."

In fact, wings are in such demand now that prices are even higher than breast meat. Some restaurants are resorting to substituting chicken breast meat instead of wings (When you order wings, beware fakes). Buffalo Wild Wings (BWLD) is promoting boneless wings made of breast meat to avoid high wing costs.

The rise in wing prices actually has boosted the breast meat market as buyers look for substitutes

This quarter SAFM will again clobber estimates on a "wing and a prayer."

Disclosure: Long SAFM

Comments

[JMBishop]

Feet! What about the feet! Let's be protectionist and keep the feet. Subsititute chicken wings for chicken feet at your local sports bar.

2009 Nov 14 01:38 PM

[Austin Lance Butler]

Nice article.

What effect could/will this have on egg farmer Cal-Maine Foods? (CALM)

2009 Nov 14 02:27 PM

[captainccs]

>>>"Jumbo wings averaged $0.132 per pound, up 62.6% from the average of $0.812 per pound during last year’s third quarter. <<<

This math is a bit dyslexic :(

Could it be $1.32?

2009 Nov 14 08:59 PM

[CoinMiner]

Wing and a prayer, nice one.

I, too, had a favorable outlook on wings and poultry in general several months ago.

However, I placed my marker on Tyson (TSN) and have generally been disappointed. There has been recent insider buying but the price action lately quite underwheling. Additionally JPM just down graded TSN. Haven't been that impressed with management decisions which have mady my radar screen either. So, perhaps SAFM is the better sector play.

2009 Nov 15 11:27 AM