Ahead of the Bell: KeyBanc cuts Sanderson Farms

Analyst downgrades Sanderson Farms to 'Hold' because of rising corn prices

• On 8:53 am EDT, Monday October 19, 2009

NEW YORK (AP) -- Rising corn prices caused an analyst to downgrade shares of poultry producer Sanderson Farms Inc. on Monday, since rising corn prices make feed costs more expensive.

KeyBanc analyst Akshay S. Jagdale downgraded the stock to "Hold" from "Buy" and said that corn prices have risen by about 50 cents a bushel since the end of August. Jagdale attributed this to speculation that a declining U.S. dollar will boost exports, concerns about inflation, and expectations that ethanol producers will use more corn.

Jagdale had previously expected corn prices would decline in coming months because of a large corn crop.

Meanwhile, demand for chicken still remains weak because of higher unemployment and soft discretionary spending that has consumers cutting back on visits to restaurants. Jagdale said Sanderson Farms doesn't expect demand from the food service business to pick until 2010, at the earliest.

Jagdale said he's heard that restaurants are serving smaller portions of chicken at lower prices, which would hurt demand even further.

Overall, however, Sanderson Farms is the best-managed U.S. chicken producer, according to Jagdale, who said he'd become more constructive on the stock if industry fundamentals improve.