Surging Lumber Costs Are Derailing Chicken-Farm Expansion

Surging Lumber Costs Are Derailing Chicken-Farm Expansion
Kim Chipman and Michael Hirtzer
·2 min read

(Bloomberg) -- Soaring costs for building materials and animal feed are prompting Sanderson Farms Inc. to put off building a new chicken-processing plant even though poultry demand is on the rise.

With lumber prices tripling in the last 18 months, it’s too costly to build the over 400 chicken houses necessary to supply a new factory, according to Chief Executive Officer Joe Sanderson.

“My heart tells me to build a plant right now. My head tells me to be patient, so I’m going to be patient,” Sanderson said on an earnings call with analysts. “This is not a good time to build.”

The comments underscore how high lumber costs are rippling through supply chains, likely contributing to higher chicken prices ahead. Tariffs on steel imports and the highest grain prices in eight years also threaten profits of the new plant.

Sanderson said the company could announce the location of a new plant in June or July after they finish vetting the site, and get clarity on the corn and soybean crops currently emerging in U.S. fields that could feed the chickens.

“We want to see what grain prices are going to be in the 2021-22 year and also want to see what the commodity prices are going to be for concrete, steel and lumber,” Sanderson said in an interview with Bloomberg.

Tightness in labor markets is keeping a lid on American meat output, Sanderson said. He tied much of the problem to enhanced unemployment benefits that are keeping some people out of the workforce.

“All of our plants are very tight with labor,” Sanderson said. “We are running our plants and we are able to process the birds and operate our feed mills and hatcheries, but we are definitely tight,” he said.

The company continues to invest in automated deboning equipment, including testing automated white-meat bone removal for larger chickens that could potentially replace 70 to 75 workers per plant. Such robotics would be a first in the industry and could potentially replace 70 to 75 workers per plant, the CEO said.

For now, high chicken prices are brunting the costs of elevated feed prices, with Laurel, Mississippi-based Sanderson benefiting from a rebound in the food sector from the coronavirus pandemic.

Chicken Sandwich Boom Helps Sanderson Beat Feed Cost Spike

He expects demand for chicken sandwiches and wings to keep rising as more people travel and dine out. “We think it’s going to be a pretty good summer,” Sanderson said.

(Updates with CEO quotes, details on plant from the fifth paragraph.)

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