Sanderson Says Furloughing Inspectors May Shut Operations

Sanderson Farms Inc., the third-largest U.S. chicken processor, said the removal of food-safety inspectors because of federal budget cuts set to go into effect next week would disrupt its operations.

The company is prohibited by law from operating poultry-processing plants without the presence of federal inspectors and would have to shut plants in their absence, Laurel, Mississippi-based Sanderson said in a filing today.

The closing of plants owned by Sanderson, a supplier to grocery chains Kroger Co. and Supervalu Inc., would be one of the effects of the automatic U.S. federal budget cuts set to begin March 1 unless President Barack Obama and Congress work out a deal to avoid or postpone them.

“Without proper notice, that would be a terrible situation for us,” Joe Sanderson Jr., the company’s chairman and chief executive officer, said today on a call with analysts to discuss fiscal first-quarter earnings.

The USDA is considering furloughing inspectors for 15 days as part of automatic U.S. federal budget cuts, known as sequestration. The move could spur the “first widespread shortage” of meat, poultry and egg products in generations, according to a letter sent to Secretary of Agriculture Tom Vilsack on Feb. 11 by three dozen trade groups from across the country.

Mortality Rates

A 15-day furlough resulting from the cuts could cost more than $10 billion in production losses and industry workers could lose more than $400 million in wages, Vilsack said in a Feb. 5 letter to Senator Barbara Mikulski, chairwoman of the appropriations committee.

The USDA is responsible for the safety of meat, eggs and poultry products with about 8,400 personnel inspecting the nation’s 6,300 slaughterhouses and processing plants. The U.S. Food and Drug Administration handles other products that account for about 80 percent of the U.S. food supply.

Sanderson said live chickens would likely experience “significantly higher mortality” because of higher weights, and the company’s inability to process chickens at plants for an extended period “would materially disrupt” operations and product delivery.

The possible cuts also may change the delivery and cash-settlement mechanisms of some livestock and dairy products traded in Chicago, the CME Group Inc. said in a statement on its website yesterday.

The cuts could disrupt USDA reports used in the daily calculation of the CME feeder cattle and lean hog indexes and monthly calculations used to determine settlement prices for dairy futures products, according to the statement.

Tyson Foods Inc. and JBS SA’s Pilgrim’s Pride Corp. unit are the two largest U.S. chicken processors.

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