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Credit woes wound Pilgrim’s Pride

Pilgrim’s Pride Corp. shares lost as much as 29 per cent on Oct. 6, spurred by new fears over the U. S. chicken producer’s ability to secure credit in a growing financial markets crisis.

Pilgrim’s Pride fell far deeper than a broader market sell-off, with the Dow down about six per cent that day on credit concerns. Shares of other large U. S. meat producers like Hormel Foods, Sanderson Farms, Smithfield Foods and Tyson Foods fell about four to 11 per cent.

The company said late last month it expected a significant quarterly loss and had asked lenders for a temporary waiver on a credit covenant. Pilgrim’s received a reprieve on the covenant through Oct. 28 and has retained advisers to review its operations and refinancing strategy.

Analysts said Pilgrim’s may need to consider more aggressive measures, including deeper production cuts and the possible sale of some assets.

BMO Capital Markets analyst Kenneth Zaslow called near-term fundamentals in the chicken market “abysmal” and said operating losses and tight credit markets will force the industry to make deeper production cuts.

Zaslow said in a research note that last week’s National Chicken Council conference also showed “major ag-related banks appear to be ‘selectively’ lending, resulting in limited liquidity for the chicken industry.”

However, “we’ve seen a huge decline in corn prices; and that should be helpful for the Tysons of the world, for Hormel, for Smithfield as well, and for Pilgrim’s Pride,” said D. A. Davidson analyst Timothy Ramey, who does not follow Pilgrim’s Pride.

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