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Ethanol blamed for chicken processor plant closings

Agriculture.com Staff 03/13/2008 @ 7:31am

Officials with Pilgrim's Pride, the largest chicken processor in the U.S., announced this week the company will close a chicken processing complex and six of its 13 distribution centers in the United States in response to the crisis facing the U.S. chicken industry from soaring feed-ingredient costs resulting from corn-based ethanol production.

"Our company and industry are struggling to cope with unprecedented increases in feed-ingredient costs this year due largely to the U.S. government's ill-advised policy of providing generous federal subsidies to corn-based ethanol blenders," said Clint Rivers, Pilgrim's Pride president and chief executive officer. "The cost burden is already enormous, and it's growing even larger. Based on current commodity futures markets, our company's total costs for corn and soybean meal to feed our flocks in fiscal 2008 would be more than $1.3 billion higher than what they were two years ago. We simply must find ways to pass along these higher costs."

These actions, according to a company report, are part of a plan to curtail losses amid record-high costs for corn, soybean meal and other feed ingredients and an oversupply of chicken in the United States. The closings, which are expected to begin immediately and will be completed by June, will result in the elimination of approximately 1,100 jobs. Additionally, the Company announced that it is in the process of reviewing other production facilities for potential mix changes, closure and/or consolidation in response to current negative industry fundamentals.

Under the plan announced today, the Company will close its chicken processing complex in Siler City, N.C., which employs approximately 830 people. Pilgrim's Pride also plans to shut down distribution centers in Oskaloosa, Iowa; Plant City and Pompano Beach, Fla.; Jackson, Mississippi; Nashville, Tennessee; and Cincinnati, Ohio. Pilgrim's Pride will provide transition programs to employees to assist them in securing new employment, filing for unemployment and other applicable benefits.

No decision has been made about the future use of the Siler City facility, however, when industry fundamentals improve, portions of the live production capabilities associated with the Siler City operation may be redeployed to supply other Company facilities in that region of the country. The company expects to record asset impairment and other charges related to the facility closures of approximately $35 million, $21.7 million net of tax, or $0.33 per share.

"We believe that the recent impact of food-based inflation, coupled with the need for food producers to continue to increase prices for their products, will further stimulate inflation, weaken consumer confidence and negatively affect demand for products in certain market channels," said Rivers. "This will require that the industry adjust its production output to levels commensurate with a reduced demand, at higher and necessary prices, sufficient to sustain the industry as a whole."

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