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Cal-Maine, Sanderson Farms continue to perform well

Mississippi’s public companies that put groceries on the table continue to dish up a fine meal.

Poultry producer Sanderson Farms (NASDAQ: SAFM) of Laurel has reported two consecutive years of record earnings and has led Mississippi-based stocks with an increase of 675% in stock price appreciation over the last five years. For the fiscal year that ended October 31, the company sold 1.5 billion pounds of poultry, three times the amount sold a decade earlier.

Cal-Maine Foods (NASDAQ: CALM) of Jackson, the nation’s largest fresh egg distributor, was the second-leading public company in stock price appreciation since 2000, reporting a 371% increase.

“Sanderson Farms and Cal-Maine seem to be the best-performing stocks in the state,” said Pinnacle Trust CEO Stacey Wall of Ridgeland. “Little has changed within the industry, and I think their successes will continue for the foreseeable future.”

Bill Herndon, a professor of agricultural economics at Mississippi State University, is keeping a steady eye on how international trade relations impact Mississippi, a rural state whose economy is strongly linked to agriculture.

“On average, about one of every four acres of agricultural production in the U.S. is exported,” he said. “Anything that happens with international trade, with WTO, NAFTA and the alphabet soup of agreements underneath it, are very critical to our agricultural sector and publicly held agriculture companies in Mississippi.”
International trade trends would least affect Cal-Maine because not that many egg products are exported, said Herndon.

“Sanderson Farms would be more affected because about 15% of poultry production in the U.S. is exported,” he said. “Because Mississippi is located on the coast, and Sanderson Farms has several refrigerated warehouses on the coast, we move a lot of poultry product overseas.”

Because roughly two-thirds of cotton produced in the U.S. is exported, perhaps the most affected agriculture-related company would be Scott-based Delta & Pine Land (NYSE: DLP), the nation’s top cottonseed producer, said Herndon.

“The world cotton crop is somewhere in the excess of 100 million bales,” he said. “This year’s was the largest crop on record. China, the largest cotton-producing country in the world by far, produces somewhere in the order of 35-plus million bales a year. The U.S. is the second largest, producing somewhere around 20 million bales a year.”

In the short run, the outlook for improved cotton prices for farmers is not optimistic, said Herndon.

“But the main thing on most people’s minds is the president’s proposed budget for fiscal year 2006,” he said. “It calls for a $587-million reduction in farm program spending, and the majority will be achieved through the redesign of payment limitations. Everybody knows that the crop farmers most impacted by this change limitation are cotton and rice farmers, which we have both in Mississippi. We’re still the third- or fourth-largest cotton-producing state in the U.S., and the fifth-largest rice producer. If those payment limitations are put in place, they’d be negatively impacted.”

Under the current law 2002 farm bill, a farm is eligible for $360,000 of program payments each year. The Bush administration proposes reducing it to $250,000 per farmer per year, said Herndon.

“It looks like there’s a battle forming between the White House and Southern members of Congress and the lines are being drawn,” he said. “Obviously, farm organizations are in the mix as well. The upper Midwest farm block — Iowa, Illinois and the Dakotas — are in favor of payment limitations because they don’t have cotton or rice farmers. Sen. (Thad) Cochran was the major author of most of those payment programs that influenced cotton and rice, in particular, because that’s his constituency. He now chairs the Appropriations Committee and is still on the Agriculture Committee. Sen. Saxby Chambliss (R-Georgia) is now chair of the Agriculture Committee. Together, they’re looking for alternate ways of getting that budget reduction.”

Over a 10-year period, the Bush Administration is calling for a $5-billion-plus reduction in farm program spending, “so the $587-million reduction is just the first installment,” said Herndon.

Contact MBJ contributing writer Lynne W. Jeter at lwjeter@yahoo.com.

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