Monday, October 27, 2008

The Unravelling U.S. Economy - A Case Study

Pilgrim's Pride, America's largest poultry producer, is in financial trouble.


It carries a large debt, due to its $1.3 billion acquisition of a competitor in 2007. Prices have increased for commodities like corn and oil.

Credit availability is tight. It is at the end of its temporary credit line.

And there is a glut of chicken on the market because restaurant patronage is down.

An Associated Press article today discussed the company's woes:

Chicken producers can't pass through price increases due to an oversupply on the market and weakening demand. Much of that is from a loss of key business in restaurants as consumers opt to eat at home more often to save money.

Mike Cockrell, chief financial officer for Sanderson Farms Inc., said business is tough. It's prime wing eating season, he points out -- with fans watching football and the World Series -- but the down economy is keeping people from going out. Normally the company can't keep up with demand. Now they have truckloads of extras.

"Our whole industry is challenged right now," he said. "We got high corn and soybean meal prices and very, very weak domestic demand for chicken, particularly from the consumer who eats away from home."

Pilgrim's stock prices are down 93% from its 52 week high and there is serious discussion of pending bankruptcy, buyout or liquidation.

We may be entering the next stage of an economy in deepening, spiralling crisis.

I fear we will be hearing many, similar stories in the months ahead of previously vibrant companies being swallowed whole by unyeilding market conditions.

Fasten your seatbelts.

- Garry J. Wise, Toronto

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1 comment:

Anonymous said...

The U.S. Economy is in poor shape due to several reasons. We have outsourced the American dream. Jobs today are low paying and have no benefits. The Minimum Wage is too low. It should be at $10.00. Americans are not spending because they do not have the money. We have too many illegal aliens here driving down pay and not paying taxes. This drives down wages. We are not addressing these core problems, only the results of these problems.