KANSAS CITY, Mo. – Joe F. Sanderson took time during a recent call with financial analysts, to explain how the company uses different indexes to price Sanderson Farms’ poultry products. What it comes down to is this: The supply and demand dynamics of fresh poultry products, even for individual parts of chickens, can be and often are very different.
Sanderson Farms produces larger birds at the company’s big bird plants, while medium-sized birds are processed in its tray pack plants. Sanderson said the products generated at the plants are sold to different types of customers. Big bird products are sold to foodservice customers in the form of bulk packs, boneless breast meat, chicken tenders and jumbo wings; leg quarters produced at the big bird plants primarily are sold for export or as fresh whole legs for further processors. Meanwhile, fresh chicken products from the company’s tray pack plants are pre-priced and shipped primarily to grocery stores.
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| Joe F. Sanderson |
“Most of the products sold from our big bird plants are priced using formulas based on price quotes published daily by Urner Barry,” Sanderson noted. “…Not only is pricing of products from our big bird plants very different from the pricing of the products from our tray pack plants, but pricing of individual parts from our big bird plants can be very different. Leg quarter pricing for example is heavily influenced by export demand, while jumbo wings move seasonally stronger during football season.”
Index issues
The Georgia Dock was a leading wholesale chicken price index compiled from a survey of poultry processors operating in the state. The index has come under fire after news reports cast doubts on the validity of the poultry pricing information contained in the index. Producers, processors, distributors, fast food operators, chain store buyers and other stakeholders in the food industry use the index.
Julie McPeake, chief communication officer with the Georgia Dept. of Agriculture which compiles the index, said the agency has been reviewing the Georgia Dock for nearly a year. Earlier in December, the agency stopped reporting the Georgia Dock Price. In a statement, McPeake cited “an insufficient supply of statistical data” as the reason for suspending publication of the index.
“The new price reporting requirements include the submission of an affidavit and attestation,” she said. “While the Georgia Department of Agriculture did receive the required documentation from some of the participating companies, we did not feel that the number was sufficient to meet minimum statistical reporting standards. We understand that companies may need more time to review the requirements and it is possible to resume publishing the Georgia Dock Price in the future.”
Speaking to analysts, Sanders said the company prices a portion of its production from the company’s tray pack plants based on formulas that use the Georgia Dock whole bird price as a base. “For the past 40 years and until recently, both processors and retail grocers have trusted the Georgia Dock price as a fair and accurate reflection of the dynamics of the retail grocery store market for chicken.
“Some have written or asked about what they see as a disconnect between the Urner Barry whole bird price and the Georgia Dock whole bird price,” he added. “The fact of the matter is, we don’t price amounts of chicken at either price. We use these quoted market prices as the base for negotiated formulas, but individual parts put into trays, wrapped, chilled and packaged for our customers are not priced at the Georgia Dock or the Urner Barry whole bird price.”
Therefore, boneless breast meat in a tray will be priced at the whole bird price plus a negotiated spread. Meanwhile, drumsticks might be put into tray and sold at the whole bird price minus a negotiated spread, he explained.
“Whole birds for retail grocery customers are sold not at the Georgia Dock whole bird price, but at that price minus a negotiated spread,” Sanderson added. “When that spread is subtracted, realized prices are actually very close to the Urner Barry whole bird quote.”
Future of the Georgia Dock
Sanderson said that if changes or “adverse publicity” caused the company or its customers to lose confidence in the Georgia Dock, both parties have the option to look for another index. He said any new formulas will the company to sell chicken at prices that reflect supply and demand. Whatever benchmark is used, Sanderson Farms’ negotiations with its customers will ultimately determine the price.
“...we are confident our price fairly and accurately reflects supply and demand dynamics,” Sanderson said. “Indeed while we use both Urner Barry and the Georgia Dock price as the base for pricing different chill pack customers, the end results in terms of net sales price is very, very close.
Meanwhile, the company plans a vigorous defense against an antitrust lawsuit filed against Sanderson, Tyson Foods, Koch Foods, Perdue Farms and several other major poultry processors. The lawsuit, which was filed by food distributor Maplevale Farms, alleges that the defendants named in the complaint conspired as early as January 2008 to “fix, raise, maintain, and stabilize the price of Broilers…”
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| Mike Cockrell, treasurer and CFO, Sanderson Farms |
Mike Cockrell, treasurer and CFO of Sanderson Farms, said defendants named in the lawsuit have an opportunity to file a motion to dismiss after the first of 2017.
“I don’t know exactly how long it will take for that to happen,” Cockrell said. But if a ruling on the motion comes in late spring or early summer, “…then the case will proceed depending on the outcome of that,” he said. “But that’s the next big step.”
