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Reports US

US stock market daily report (July 09, 2014, Wednesday)

July 10, 2014, Thursday, 02:08 GMT | 22:08 EST | 06:38 IST | 09:08 SGT
Contributed by Millennium Traders

Aviagen Group, the world's largest breeder of hens and roosters, has discovered that a key breed of rooster has a genetic issue that is reducing its fertility. Aviagen spokeswoman Marla Robinson said that the breed - Aviagen's standard Ross male - is sire through its offspring to as much as 25% of the nation's chickens raised for slaughter. Efforts to improve the quality of the chickens are a result of regular 'tweaking' of their genetics.

The issue is hitting U.S. poultry production as well as the poultry industry, already suffering from a short supply of breeder birds. Aviagen Group is privately owned by EW Group of Germany. The sudden hike in beef and pork prices has renewed demand for chicken. After the cutback 2011 when breeders reduced their flocks due to a spike in feed prices, there remains a lack of accommodation for newly born breeder birds which is slowing the rebuilding process for chickens. At a time when the poultry industry is dealing with a shortage of breeder birds, the fertility problem could not have come at a worse time.

Export of U.S. chicken is increasing with projected exports for 2014 forecasted to reach 3.4 million tons, up from 3.1 million during 2013. In June, the U.S. Agriculture Department reduced its U.S. chicken production forecast for 2014 to only a 1% increase in poundage from 2013, well below the long-run annual average of 4%. For 2015 Ag Dept. predicts 2015 production would be up only 2.6%.

Aviagen has replaced the breed suffering from fertility issues with a new breed that is mating with the same type of hens. While it remains too early to provide accurate projections for their productivity Robinson said, "results to date are favorable."

Sanderson Farms, Inc. (SAFM-Nasdaq) is one of Aviagen's largest customers and holds #3 position for U.S. poultry producers. Chickens Sanderson gets from Aviagen are bred and eggs hatched are used to produce chicken meat for consumers.

In the summer of 2013, Sanderson first identified an unusual reduction in chick output involving the Ross breed from Aviagen. Mike Cockrell, chief financial officer Sanderson said nearly 17% of eggs laid by hens mated with the rooster breed failed to hatch while the usual failure rate is about 15%. Cockrell said Sanderson gradually eliminated a number of other potential factors, including temperature in hatcheries and source of corn feed. In the fall of 2013 Aviagen sent a team of scientists to Sanderson to investigate the issue. The breeder acknowledged that an undisclosed change it made to the breed's genetics made the birds "very sensitive" to being overfed. Cockrell said about the breed of rooster, "We fed him too much. He got fat. When he got big, he did not breed as much as he was intended to. The fertilization went way down, and our hatch has been way down." Sanderson plans to completely shift to the replacement breed by autumn.

Chicken producers are keeping their hens laying eggs longer than usual to compensate for the lack of new birds. Some birds are laying longer by up to five weeks beyond their typical cut-off age of 65 weeks. Eggs from older hens tend to hatch at a lower rate.