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As feed costs soar, Zacky Farms files for bankruptcy

Drought across much of the U.S. puts the squeeze on corn and soybean supplies. In filing for bankruptcy protection, poultry producer Zacky Farms cites skyrocketing feed prices.

October 12, 2012|By Ricardo Lopez, Los Angeles Times

The U.S. Department of Agriculture projects domestic supplies of corn and soybeans will be tight in the next year as the worst drought in decades continues to parch most U.S. states.

In its monthly crop report, the USDA reduced its corn production forecast to 10.706 billion bushels, slightly down from last month's projection of 10.727 billion.

Illustrating the price squeeze on producers, one of California's largest turkey farmers, Zacky Farms, filed for bankruptcy protection this week, blaming skyrocketing feed costs.

The tight supplies are not welcome news to state livestock producers, which have seen prices of corn rise dramatically this summer as the drought baked the country's midsection.

Corn futures, which have been at historical highs, were up 5% Thursday in the wake of the USDA report, selling at $7.73 a bushel for December delivery.

That's significantly lower than the record price of $8.49 set in mid-August.

The agency's report also said that the country's soybean crop would be larger than it had expected last month, with harvest estimates revised upward to 2.86 billion bushels. The harvest, however, is still projected to be the nation's smallest in five years.

Since the dry spell set in this summer, the drought has destroyed more than half the nation's corn crop. The USDA expects the corn crop to have its lowest yield since 1995 and cause food prices to rise for consumers.

For livestock farmers, skyrocketing grain prices have cut into profits, particularly for poultry farmers whose birds' diets consist almost entirely of corn.

Zacky Farms filed for Chapter 11 bankruptcy protection Monday.

According to court records, rising feed costs caused an "extremely difficult liquidity crisis" at the Fresno company.

Bankruptcy protection would make it possible to "obtain the funding necessary to feed the birds and pay its ongoing bills to continue its operations," the company wrote in its filing.

Zacky Farms, which also has operations in Stockton, employs about 1,000 people in the state's Central Valley.

The company didn't respond to a request for comment.

Bill Mattos, president of the California Poultry Federation, said poultry producers were struggling to make a profit or were even losing money as they continued their operations this summer in the wake of the drought.

California livestock producers are particularly vulnerable because most of their feed is shipped from the Midwest.

"The price of corn has been very, very concerning for the industry," Mattos said. "The only way the industry can be profitable … is to raise chicken prices and turkey prices."

Mattos said that while Zacky Farms' bankruptcy underscored the severity of high feed costs, he didn't believe that other poultry companies would be making similar moves.

"We're hopeful that Zacky comes out of this strong," he said. But "I don't see other companies vulnerable at this time."

ricardo.lopez2@latimes.com

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