Good morning and welcome to the Pilgrims Pride conference call to review the company's financial results for the first quarter of fiscal 2008. At the Company's request, this conference call is being recorded. Please note that slide references during today's call are available for downloading from the Investor Relations section of the Company's website at www.pilgrimspride.com. Beginning today's call will be Gary Rhodes, Vice President of Corporate Communications, and Investor Relations for Pilgrims Pride. Mr. Rhode?

Good morning and thank you for joining us today as we review our financial results for the first fiscal quarter of 2008. Earlier today, we issued a press release that provides an overview of our financial performance for this period. If you have not already seen this press release, a copy is available on our website along with other downloadable information. Joining me on today's call are Rick Cogdill, Chief Financial Officer; Clint Rivers, Chief Operating Officer; and Bob Wright, Executive Vice President of Sales and Marketing. As most of you know, our President and CEO, O.B. Goolsby passed away unexpectedly last month after suffering a massive stroke. A special committee of the Board of Directors is conducting a search for his successor, looking above the internal and external candidates. O.B typically led the discussion on our quarterly conference calls, including providing an update on our sales performance. In the interim, Bob will be handling that portion of our prepared remarks. Before we get started, I would like to remind everyone that today's call contains certain forward-looking statements. These include our expectations and future results, sales and cost of sales information, and pricing and market dynamics. Actual results might differ materially from those projected in these forward-looking statements. Additionally, information concerning factors that could cause actual results to differ materially from those forward-looking statements is contained in today's press release, as well as in our forward-looking statement and risk factored disclosures contained in our Forms 10-K, 10-Q and 8-K, as filed with the SEC. I also want to note that since the first quarter of fiscal 2008 is the fourth full quarter to include the results of Gold Kist. We will at times be discussing the results of our operations, compared to the pro forma amounts for the prior year period. These pro forma amounts attempt to include the full effect of the acquisition, as if it had existed for the entire comparable periods. Comparisons of current results to the prior year periods' previously reported results also will be discussed at times. Rick will begin the call with a brief overview of our results and a look at our financial performance. After that, Bob will provide a sales update and Clint will then outline what’s going on from an operations perspective. Following those prepared remarks, we will take any questions you may have. I will now turn the call over to Rick.

Thank you, Gary and good morning to everyone. Earlier today, we reported a net loss of $32.3 million or $0.49 a share on sales of $2.1 billion for the first quarter of fiscal 2008. The results for the first quarter of fiscal '08 included a non-recurring income tax charge of approximately $13 million or $0.20 a share, related to an adjustment in deferred taxes as a result of a newly enacted tax law in Mexico. Our net loss in the quarter compares to a net loss of $42.9 million or $0.64 per share on a pro forma basis for the same quarter last year, or a net loss of $8.7 million or $0.13 a share on a reported basis. Our results in the first quarter reflect the huge challenge posed by soaring feed-ingredients costs, which have climbed significantly over the past few months and show no signs of letting up in 2008. Our pro forma feed ingredient purchases during the first quarter climbed $157 million, compared to the year-ago period. Those cost increases, coupled with the operating inefficiencies we outlined during our year-end call back in November, more than offset what was actually a pretty decent quarter from a sales perspective. That being said, our contract negotiations with customers have been challenging. We are seeing considerable price competition from other producers and many of our food-service customers are already facing significant costs increases for meat, dairy and other products derived from corn, not to mention higher cost for other commodities as well. Our customers are feeling that they simply cannot absorb all of these cost increases themselves. Stiff competition from other food-service providers limits what they can pass along to their end-customers. However, this dynamic is true for our industry as well. For the US chicken producers to survive, we…

Thanks, Rick. Good morning, everyone. Our sales in the first quarter reflected continued growth in our consumer retail business as we gained additional business with a number of large customers, and increased our penetration in supermarket meat and delicacies. We have a number of new products that are being picked up by large accounts. This has contributed to the growth that we've been experiencing in the retail channel, with prepared foods and fresh products increasing 13% and 4% respectively on a pro forma basis in the first quarter. In addition, export demand remains solid and we were able to reduce our commodity pounds by upgrading products into value-added items. As many of you know, during the past few months, our sales team has been busy negotiating annual contracts which represent less than 48% of our total net sales. A key focus in these negotiations has been the soaring cost of corn and soya bean meal, and the need for price increases to reflect our higher input costs. We've now concluded approximately 50% of our fixed price contract negotiations. In general, we have been successful in passing along price increases to these customers. However, these increases may not be sufficient to cover the recent run-up in feed cost, or the prospect of further feed cost increases, as we move through fiscal 2008. As Rick mentioned, market prices in the first quarter of fiscal 2008 were stronger than the year ago period, providing some leverage for us in contract negotiations. However, we are now cycling through the first anniversary of higher pricing that occurred last year as a result of production cutbacks by a select few processors, and comparables are no longer favorable. For example, January data for breast meat and wings show that market pricing is down 3% and 9% respectively,…

Thanks Bob. Good morning everyone. Last November, we discussed some of the operating challenges we were facing as a result of higher feed and fuel costs, labor shortages in selected locations, and operating inefficiencies. At that time, we'd explained that those operating inefficiencies would have around the same overall impact to our cost structure in the first quarter. We also described some of the steps we were taking to address those issues, so they would be fully resolved before the end of the 2008 fiscal year. Those comments have largely held true. We have made some progress during the quarter, reducing the impact resulting from these issues. While we aren't out of the woods just yet, our staffing levels in most of these plants are returning to more normalized levels, although we still have some room for improvement. We continue to believe that our investments in automation will help alleviate the worker shortage and increased throughput. To-date, we've added this equipment in two plants, one plant installed the equipment towards the end of the first quarter, while the second plant completed its installation in mid-January. Additional installations are scheduled through the third fiscal quarter. In addition to these investments are our fresh plants. We continue to pursue our strategy of building our further processed business with additional further processing capacity which is coming online this spring. We are making these and other improvements, so that we can move more products through our facilities more efficiently, and help reduce the need to use outside processors. We'll continue to use technology and automation when the payback exists. As shown on slide 11, our first quarter capital expenditures, which include some of the automation, totaled $43 million. The year, we continue to expect capital expenditures to be in the $225 million to $250…

Thank you, Clint. And as Bob and Clint both have indicated, the road ahead is filled with challenges. The most significant of which is a continued increase in feed ingredients pricing. The Federal Government's Ethanol Policy has created some very real changes for not only the American chicken industry, but for a good portion of the rest of the economy as well. There are a number of factors that should aid us in mitigating some of the negative effects from increased feed and other costs. However, higher pricing in our sales contracts will have to be the primary vehicle. In addition, healthy export markets continue to work in our favor as the weak dollar has made US poultry attractive to other countries, particularly China and Russia. Further realization of the synergy savings by the Gold Kist acquisition should continue to have a positive impact and help mitigate the impact of some of the other cost increases that are challenging our business. This concludes our prepared remarks for today. I'll now ask the operator to open up the call for questions.

Thank you, speakers. At this time, we will now open the floor for questions. (Operator Instructions). Our first question will come from Reza Vahabzadeh from Lehman Brothers.

Hi, Reza.

The SG&A expense line item in dollar amount was $9 million more than the preceding quarter and also higher than two or three quarter before that. Was there a specific driver for that or is this the new run rate?

I think that there was a little bit higher than the last quarter, but they were just year-end adjustments that might had some effect at the end of the last quarter. We still expect the run rate to be in the high 4.x% to 5%. So, I think that's close to the run rate. Also, we have quite a few sales programs that are tied on (inaudible) rebates or whatever based on sales dollar value. So they tend to change the dollar value as sales changes as well. So I think that's the primary drivers.

Got it. And then on the prepared business, I thought you mentioned your sales increased 12%, was that primarily price mix and price increases with volume being in low single digits?

Yeah. Actually, most of that was volume. It was 12.5% and approximately 9% of that would have been volume and the revenue per pound was the balance.

Got it. So your grain cost, not to mention fuel costs have increased since we last spoke. What type of price increase would you need from these levels to be able to offset, I mean occurrence stock market levels, is there a kind of ballpark figure 4% to 7% that would be in the right ballpark?

It might be higher than that if you looked at all pounds. I mean you're doing with roughly $700 million -- as we said $700 million on, call it what, above 9 billion pounds of chicken. So you're somewhere in that 8% to 9% on all pounds, which will get you closer to 10%.

Okay. And is there any production for industry data that you have seen or read about that would imply that there was any kind of a production slowdown or cutback by the industry or some players at least in the second half of this calendar year?

The only thing -- Reza, the only thing we're seeing currently would be the most recent pullet placement information from the last two months, November and December are down year-over-year there. November was 98% at the year ago and December was 94% at the year ago. The supply flock though, I think if you look at the total supply flock out there that we're currently operating and is probably up about 2% compared to the same period a year ago. So that's why you're seeing the placements still be a little bit higher than the year ago number. I think forward-looking, it looks like the industry is taking some corrective action on the supply side of the breeder stock. The question is whether or not that's going to happen quick enough to get the costs to be passed along.

I see. Okay. And then as far as production efficiency that Clint touched on, I mean from an efficiency standpoint, when do you think you will reach normalized level? I know you're improving, but when do you get to normalized level?

We should get back to where we want to be certainly by the end of this fiscal year, but begin to some of the improvement in the end of the third quarter. By the fourth quarter we should be there. We improved some, this quarter over the prior quarter. I'm going to say that we've gained about a third of our inefficiencies back during this last quarter. That would put a number to it.

Got it. Thank you.

Thanks, Reza.

Thank you. Our next question will come from Diane Geissler, Merrill Lynch.

Good morning.

Good morning, Diane.

I just want to -- you made the comment earlier that higher feed and some of your higher costs are actually masking some pick-ups on the sales line and kind of back into a realized price on the boneless skinless breast fed suggest that the price you're realizing is about $0.50 higher than the current spot levels. And I am just wondering is what are you seeing in your prepared foods, the volume that's going through the prepared foods?

Yes, Diane, this is Rick. I can't really follow your -- the way you are coming off of that, about boneless skinless breast realizing 50% higher than the spot level?

$0.50

$0.50, yeah. I would say, clearly the prepared foods product mix always has a higher weighted average selling price than what you're going to see in the commodity spot markets, as we've mentioned in the past that's tied more to ideally cost of production as a foundation as opposed to these coded markets.

Okay.

But we're selling commodity breast product on the market, we're pretty much in the same market dynamics as everybody else and selling somewhere around that whether it's at or behind depending on the surplus or the planned sale aspect of the sale.

Okay. Well, I think, it would be helpful for us to follow your stock or maybe own your stock to get a little bit better handle on what is the sensitivity there on the prepared food side, considering sort of what you're looking at this year in terms of incremental grain prices and ability to recapture that through either product mix or pricing, you already gave out a lot of detail in your segment analysis but you know that's…

Yeah, I think we do. I think we give out more detail than you'll find from our peers and you've got the Prepared Foods division that's lined out in our sales table, and for all practical purposes those are sold under or the fixed nature contracts than everything else.

Should we assume that the tonnage number that you've given out in terms of what's currently unpriced is more prepared foods versus [thought] then?

No, I wouldn't assume that. If you look at our fixed price contracts, we have a large percentage of that today that would be non-prepared food base. There is a lot of retail products in there that's fixed price as well, and that's why they were only 50% priced at this point whereas in the past, prior to Gold Kist we might have been closer to 80% or 85% priced.

Alright.

But, you know, as Bob mentioned we've got roughly 70% of our total volume that is yet to be priced or is going to be priced based on these floating commodity markets. Now, in a situation like we are now where we need to drive commodity prices up, that's going to give us the opportunity for more immediate benefit to our P&L than what we would have had say, historically three year ago, when a higher percentage was fixed price.

Okay. Alright, and then can you just put some clarity on what your plans are for production levels in the fiscal second quarter? Last quarter you'd mentioned, do you thought it would be flat year-over-year; pro forma with Gold Kist. Could you just speak a little about, for the March quarter what your production, what you are planning?

Our plan for the current quarter will be up some from the prior year, probably…

I think, what we said last time was that we intended to basically be in line with the industry as a whole, and I think the comments that they kind of spoke to that as well. You know, the industry as a whole still is as you see coming off a 102% of prior year in terms of the breeder stock, so, right now there is more production that's still coming people had not gone to the extremes yet of breaking eggs.

Okay. So, if you assumed that 2% to 3% increase…

I wouldn't say that because that would assume that we were also inline with the 2%, production will be up this next quarter. It's not going to be materially different than what you are going to see for the industry though.

Okay. Alright, and then I guess my final question is in your other income line that seems to be a pretty strong number that has been strong for the last few quarters, if you could give some comments on what exactly is running through there and what that is exactly?

A lot of the other income line is coming from our rendering operations. We also have our commercial egg operations and we also have some non-poultry sales of feed and other products in Mexico, as well, that go through that line. And I would say the primary driver of the operating margin is going to be in what we call the rendering operation, which is really driven by the whole demand for non-petroleum based fats, and we benefit a lot from that in our protein business due to sale of fat on the open market, so, I guess, if we wanted to get sexy we could call that our Biofuels division.

Yeah. No, I just want to understand that you don't have to spin it for me.

Okay.

All right. Thanks.

Thank you. Our next question will come from Farha Aslam with Stephens Incorporated.

Hi, good morning.

Hi, good morning.

Good morning.

Hi, Farha.

Hi. Could you just give us a little bit more clarity on your gain cost, current in the quarter, what was your average corn price and soya bean meal price in that 157 number?

Hi. Could you just give us a little bit more clarity on your gain cost, current in the quarter, what was your average corn price and soya bean meal price in that 157 number?

We're going to still really be pretty close in terms of the bulk of what you see pretty close to the market, not a whole lot different from that. So whatever you're seeing in the future's market is pretty close to what we're buying.

Okay. And then some more color on your--

Again that's the board price and then every feed meal around the country has a different freight basis going to that location as well.

That's fair. And then when you look at chicken production, year-to-date chicken production is up 7.4%. Could you just share with us more color if you think for the full quarter that's going to be at that level comes down, and maybe a little bit more details on where Pilgrims fits into that.

You're saying year-to-date industry production is up 7%?

Yeah.

That's a lot higher than the numbers we're seeing, Farha.

Okay. So just we're seeing chicken sort of up like 6.2% year-to-date and average weight being up like 1% to 2%? Kind of what kind of numbers--

More reasonably you're saying, but not for the entire calendar year--

No. Just for the first few weeks of January.

The first few weeks January, okay.

And so where would you see that going for the month, for the quarter ending March?

I think we've seen a couple of things, as we mentioned you're seeing the pullet flock starting to pull back, which I think is good but the overall supply is still up 2%. You are correct that the weights have continued to go up in general. I believe if you -- that is an option to decrease volume in the market without necessarily decreasing egg sets. And I believe last week, if you look at the information, we actually saw the weight actually come down relative to the prior week. I think they are about 98.5%. So I think what you're seeing out there is as corn costs have escalated some of the heavier weight birds might be taking some of the weight off and flattering maybe a little bit lighter than what they had in the past, and we're seeing that as a vehicle to reduce the total supply in the market without necessarily cutting total production.

And as you look at the chicken industry and balance sheet how they stand in the industry? How quickly do you think production costs will come through?

Well, I think something has to happen in a relatively short order. I think that was the comments we tried to make. The highest cost feed is not yet running through the P&L. That's going to continue to accelerate as we go into the next quarter and based on the current outlook that probably peaks sometime in the April -- late March to April timeframe will probably be the peak of costs coming through. So the industry condition and the profitability, ups and changes in prices will continue to get worse as to what we've got to have is pricing move in a positive direction and we're starting to see that. The question is whether or not it's going to go fast enough, quick enough. We're seeing breast meat come up in the last week. We're seeing the Georgia Dock move in the last week, week and a half. As Bob mentioned, lag quarters continue to be strong and we think they are going to accelerate going into the spring and summer as well. So we see prices moving in the right direction, but from a cost standpoint, it's continuing to go the other way as well.

And my final question is, do you anticipate this time around the production cuts will be led by the larger players such as yourself and Tyson? Or do you think this time around, it's going to come more from the other 50% of the industry that's smaller?

Yeah. I think this time around you're going to see more of it coming from the other market participants. And the reason I'd say that is because, as we've mentioned in the past, we actually cut our production last year, 5%. You saw that in our numbers, we were down about 3% I believe year-over-year. The market as a whole probably is going come in close to flat. So, it's clear that Pilgrim's was the party, probably the primary party that led the reduction last year. And our plants need to run at some level of throughput in order to maintain reasonable efficiencies. And the rest for of the market is going to have to pick-up a fair share in order for the production to come out of the system.

Great. Thank you.

Thank you. Our next question will come from Robert Moskow of Credit Suisse.

Hi. Thank you. And I just to wish my condolences on the passing of O.B. It was very sad to hear.

Thank you, you said that.

And also, it sounded to me like your customers are getting less willing to absorb some of the price increases that are necessary to offset the grain. We've heard from you and from other food producers that consumers are more willing to accept it; retailers are more willing to accept it. But I think listening to you and then listening to Tyson, it sounds like that you're starting to hit up against some new levels. Are you expecting to go back to these same customers in a couple of months? Are you negotiating shorter term contracts?

I think as we commented that we've got about 70% of our current sales that have yet to be priced they are either on some sort of market-related pricing agreement or the dates at which we negotiate these have not yet arrived. And so, the opportunity is still to get the maximum we can on those 70% of our sales. Now, on approximately 30% that has been negotiated as we talked about 20% is fixed price contracts that for the most part, we'll probably have to live with for the balance of the calendar year. Some of those have other openers or opportunities for us to make adjustments but some of them do not, but again, we've got 70% that has not been priced and there is about 10% of our sales that we've already negotiated which would not be on a fixed price. So, here is the potential for 80% of our sales to still move.

And do you think you need about 10% pricing on that 70% net that is your [fixed price]?

I was just saying if you would to try and cover the entire 700 million it's going to take close to 10% across to all pounds to cover that cost, and so, right now we're up year-over-year 12%, and as Bob mentioned, if you look at Q1 this year versus Q1 last year pricing was up 12% and we need the same kind of push going into fiscal '08 that we saw in fiscal '07 of the same level of magnitude to cover these costs.

Okay. And have you started talking to any of these 70%, are you getting any kind of an initial is there a shock when they hear that it's this much or is it a back and forth, or is it just they are absorbing it?

We are in various stages of discussion with all of those customers. The ethanol demand and the queue for food discussion are well-publicized. So, the concept for needing higher increases is not a surprise to them. They are having it from their dairy supplier, their bakery supplier, and their soft drink suppliers. And I think it's the order of magnitude, which maybe comes as a surprise, and whether it'd be a retailer or food service establishment, it's the totality of all these increases that is burden, some sort of.

Okay. Then lastly on feed cost, you mentioned $700 million, Tyson gave out $500 million number yesterday, I never thought of you guys are speeding that many more chicken than Tyson. I expected your feed cost to be up another $600 million or so, am I doing the math wrong or are you feeding that many more chicken than your competitor there?

We don't really know the foundation for the $0.5 billion if that was for the year as a whole or if that was for the rest of the year. But I would say that if you look at market share, we have about 25% of the market share, I think they've got about 20. So, our numbers should be about 20% larger than theirs.

Okay. So, we are close, but now quite...

Yeah.

Okay. Thank you very much.

Thank you. Our next question will come from Eric Katzman, Deutsche Bank.

Hi, good morning.

Hi, Eric.

Good morning.

I guess, tough times comes -- it means tough measures, have you kind of looked at the Turkey business which is always kind of been let's say a tertiary business and maybe even Mexico, given the times to pullback and just kind of focus on U.S. I mean is that something that's impossible or do we wait for the new CEO to make kind of a decision like that?

No, I believe that we have always said that we continue to look at all of our options for all of our businesses, and I think we've talked about Turkey in the past, and Turkey has cyclicality to it, but you know something we have to continue to evaluate it actually had a profitable quarter as you would expect in the first quarter, I think we made operating margin of about $1.7 million or so. But you're right, it just depends on the magnitude of what happens and how things go but Mexico as a whole had a fairly difficult first quarter but as we've said in the past Mexico tends to cycle a lot quicker than what we see in the U.S. because it's more of a cash flow society, and I think that here is not in for Mexico yet and I think we have some optimism that would come out of Mexico throughout the rest of the year.

Okay. And then, just as a follow-up to Rob's question, I guess, about the contracts and the -- how have the discussions gone in terms of when I assume you're pursuing this but trying to get the industry as the industry leader trying to get the customers out there to move away from the once a year fixed contract and move more to a quarterly kind of cost-cost type of situation. Because it seems like in this type of environment that's really where we need to go and it would also seem that if the food-service operators out there that are giving you push back rely upon a marginal producer for their volume for, let say, a few quarters that's just going to be, I would say, just a temporary fix. I mean they have to realize that this isn't a profitable industry by and large. And that at some point, maybe longer rather than shorter but at some point all this stuff has to be passed through on price.

I think we are having some of those discussions with a number of players. However, there are certainly other alternatives for them in our industry that may not be requiring that and as long as that option exists for them they'll resist it as long as they can.

But, and I guess maybe this goes back to maybe it's Farha's question, but based on your kind of understanding of the marginal players with this kind of feed cost. I mean, how long can that go on for? I mean if they are kind of content to -- if you can only earn 0.1% operating margin, I have to assume that the other players are loosing money and at a certain point, you know of the old adage, you can't beat them on volume?

Yeah. And I think that that's a question that I wish we knew the answer to in terms of how far and how long these other players could hold out. But I think all we can do is continue to try and push, try and drive the contracts in the right direction, we are doing. But I think it comes to a point of whether or not you're willing to walk away from a sale in order to make that point. And we have walked away from sales in certain cases, where the pricing just did not make any sense. So we are trying to hold the line. We are loosing at times the competitive bids. And if the value is not there, we believe we're going to have better options down the road. So we are trying to take a leadership position from a pricing perspective.

Okay. I'll pass it on thank you.

Thank you. Our next question will come from Ken Zaslow, BMO Capital Markets.

Good morning, everyone.

Hi, Ken

Good morning.

Hey, Rick, can you give us a little idea on the low loan covenants that you have, and are there any issues that you might be coming close to them and do you start to apply for a waive, how does that all work?

Right now, I think we put some highline debt covenants in our slide presentation, but our covenants are all in nearly decent shape. Again, it has to do with magnitude and how long things progress, into what extent they progress without any topline improvement. Clearly, we've got to see that. But I would say there is a plenty to [cushion] today in all of our covenants. If you look at the year as a whole at a macro level, it looks very similar at this point to what we experienced last year. Our losses this quarter on a pro forma basis, on a reported basis, are worse than last year. But on pro forma basis, if you take the combined companies that we are today, versus last year, we actually preformed slightly better as we tried to bring through in our remarks. And then, we all know the results of the combined company for Q2 through 4 of last year. So again, if we have the same type of a business cycle this year that we had last year, as you saw last year, we had a plenty of covenant room in our current credit structure.

So are you implying that by the third quarter, you're going to be making somewhere in a $137 million? Do think that could be?

I'm not implying that per se, I'm saying that the year at this point is in the same kind of status it was this point a year ago. And actions are going to have to be taken one way or the other through the industry to pass along these costs. We were the leader in cutting production last year to help drive that. This year, we'll have to wait and see how the market impetus happens, but I believe the writing is on the wall, the cost structures that are continuing to accelerate. As I mentioned, the cost will continue to get higher going through this next quarter or so. We're going to have to see some positive movement on the top side to offset the cost.

Okay. And is there a number of quarters that if you have a negative, something happens in loan covenants or how does that work? Just to understand there a little better.

Well, my debt covenant package is out there.

Okay.

I mean it's out there, it's all publicly available. But every credit ratio you have to look at, I think now from a leverage ratio, it's based on a rolling eight quarter average. So we try to build in cyclicality into our covenant structure that this industry has to absorb. Probably my tightest covenant today is a current ratio, and that's probably high primarily because of the refinancing we did by selling some accounts receivable at the end of last year. So it's something that we can manage through.

So if you take the smaller players and you take Tyson and you, I thought generally they don't have as much leverage, I thought a lot of them like you, get limited leverage, and then Tyson seems to be in the position that they are not going to be cutting production. If the market condition is going to get worst, would it be more likely that you would have to make the first move?

I got to guess, you're speculating, I don't really know if that would be true, if you look at our covenant package and our debt credit statistics today, we're in better shape today than we were a year-ago at this time. So, I think a year-ago, we probably had more reason to be concerned about debt covenant issues than we have today.

And how much of the 70% of your products that haven't been priced are lags?

That would represent about 10% of our total sales.

10% of your total sales, not the 70%

You are talking about the portion that you…

Because you said your unpriced is about 70% and lag price is a pretty phenomenal, and if that's the unpriced portion, so be it. If that's the unpriced portion, who cares because their demand seems to be pretty robust. So, that's why I am trying to get a picture of the 70%. How much is lag, if lags are a large portion of it -- your feed costs could be kind of commentate a little bit quicker?

Our export volume is relatively consistent year-to-year, and as we've mentioned in the past it's about 20% roughly of our total production volume that would go into that market. So, it's probably at the revenues that we've been seeing 20% of volume and 10% of revenues, roughly.

Okay. And my last question is, yesterday Tyson reported. They have a chicken margin of 1.7%. You guys came in lighter than that. Can you help us understand, what's the differential between that? I'm assuming it's not simply the labor costs or is it?

I was hoping you would ask that question last quarter. Why we had an operating margin of twice what Tyson reported in their chicken division, but you didn't ask that question.

You have to e-mail me next time. I'll answer it next time.

Okay. I think you've got differences in company's product mix that drives their margin from quarter-to-quarter. And, as we mentioned with the acquisition of Gold Kist, we have a higher commodity mix than what we had prior to that acquisition. Clearly, the commodity markets tend to suffer in the fourth calendar quarter, and the first calendar quarter of the year. And so, I think it's not unusual that you'll see our product mix suffer on a competitive basis relative to what Tyson's would have at that point in time. I think they have, as they've talked in the past on some of their conference call. They have a fair portion of some of their mix that's on a cost plus basis. We have some of that as well. My guess would be that they might have a little bit higher percentage of that that helps them in these more difficult time periods like this, than what we have. So, that'll be just my guess, but again it's hard to really say without getting specifically into their sales mix.

Right, I appreciate it, thanks.

Okay.

Thank you. Our next question will come from Christine McCracken, Cleveland Research.

Good morning.

Hi, Christine.

All right, you have a new head of risk management coming in here, what some might call the most difficult commodity environment, maybe ever. I'm wondering have you changed your policies, did the timing of his addition have any impact on how you prepared for the run up in grain or maybe you can talk about, you don't have to get specific, how you approached on the volatility in these markets because there are grains and oilseeds go back here in the last week or so, and might have given you an opportunity to lock in some, how do you prepare for potential drought? And maybe you can just talk about how your approach to risk management might have changed now, especially, given that you've dedicated more resources to that?

Yeah, I think as I mentioned on prior calls, the environment that we're in today with this ethanol demand driving a lot of the consumption side of the corn crop has really changed the dynamics of the seed ingredient procurement side. And that's why we went out and we brought in somebody to really make that their focal point of attention, as to study not only those commodities but all the other commodities as well, we're looking at diesel and natural gas and soybean oil and other things that we use in our business model and it hasn't changed our approach. I'll say, yes, we basically have gotten a lot more focused to looking for opportunities to cover percentages of our usages as opposed to relying more on the markets to get steady flow of transactions. So, we're not giving any specifics where we're on any kind of hedges or positions that we might or might not have. We're not going to talk about that now or in the future but we're more actively looking at these markets and deciding when is the right time for us to take long positions as opposed to market positions.

All right. And just in terms of the increases in production that we've seen here, that have been mentioned previously, at what point does the industry need to cutback for the summer? I guess, if you consider the strongest demand period, would it make sense even for the industry? And then in your case, you talked about the little guy cutting back, would it make sense for him to cut back in front of the summer or wait really until midway to the summer, and then that production cuts would hit really in the fall when demand would be weaker? Can you talk about how the small guy might look at that and how you approach it?

Well, again, as I mentioned, the cost curve is accelerating. And so I think that's what we need to make sure everybody understands, and I know that the people in the industry understand it. So the cost that's feeding through cost of goods sold in the quarter we just finished is lower than the cost that we'll be feeding through cost of good sold in Q2. Because that the procurement costs has done nothing, but increased. So I think everybody is looking at that dynamic and saying, how do we get those costs through our sales cycle as quick as possible? And waiting till the summer and hoping the summer bails you out is an option. I just don't know if waiting that long is going to be the right thing to do for the industry as a whole, given the cost curve that we are on right now.

And then, just on automation, are you giving up any yield when you make the shift, can you talk about transition there? Did it hit you this quarter when you move to automate and moved away from that labor base or lack of labor base in terms of utilization of that plant, can you talk about that shift?

Sure. So far we've installed some of the automated deboning in two of our locations. In one of our locations, we're at work prior to putting it in the other location; our yield is actually getting better from what we were. But realizing that that was, we were struggling with some staffing inefficiencies and hard turnover. So, we didn't have consistent workforce that we wanted in that location. But all in all, I would say given a consistent staffing, experienced personnel, the yield is not going to be as good but where we're having a hard turnover, the opportunity as for the yield would be just as good as it would otherwise be and allows us to get the product processed when we wanted to. And so to that end, more of our plants, we are back-up closed to full utilization, second plant for the insulation is more recent. We actually were one machine short. That goes in this weekend. So after this next week we expect to be back to full utilization of that facility as well.

Prior to that, a couple of weeks where you may be a lot lower and then it gets back to normal?

That's right. And then we still have additional equipment coming in and plants installations at some other facilities. Depending on content of results, we experienced more. We've already put the equipment in, but we expect to do more of that and plant some more efficiencies gained through that installation.

All right. Great. Thanks.

Thank you our next question will come from [Chris Bradsaw], Lehman Brothers.

Hi. There.

Hi, Chris.

In the prepared remarks, you had referenced, I think to the potential for significant upside opportunities to come out of the current environment and I was just wondering if you can clarify? I guess I took that to mean maybe a shake out amongst smaller processors. But I hope you can clarify a little bit more what you meant by that?

Well, it's our belief that the industry is going to help drive commodity prices higher and that the amounts of our sales that have a market component are fairly high right now. And so, we would be able to benefit from increasing market pricing.

Okay. And also to follow on that, to me it seems to be about as bad of a feed cost environment we've ever seen. And I would have expected that at least some processors would be breaking eggs at this point, but it sounds like you're not seeing that. Why do you think it’s taking maybe longer than usual or isn't taking longer than usual?

I can't say for certain that there is not egg breaking going on. And I can't say that we don't know that it is going on. What we're seeing, is the eggs sets still are, it's basically inline what you'd expect from the breeder supply flock. So it would indicate that there is not a whole lot of deviation there, at least currently. Now, that can change very quickly as we've seen in the past. And there is also a very high demand internationally for breeder eggs. So you might see no change at all in breeder stock, but you might see egg sets start to get deviated towards the export market. And you'll have a hard time to figure out how that all makes sense. But that's because, worldwide there is a shortage of eggs as well.

Got it. Okay. And one last one, I might be looking at this the wrong way. But as I think about processors being now more consolidated than they were in past cycles, and also I'm looking at the supply chain, I would have thought that the balance of negotiating power maybe has shifted more in favor of processors rather than grow out farmers. But the structure of the industry today I think is integrated and doesn't really allow you to capitalize on that negotiating leverage. So, first of all, is that right? And then I guess secondly, would you think about moving to a more or I guess a less vertically integrated model, or are there ways to better leverage that, increase negotiating leverage with the grow-out farmers?

I don't see realistically whether that would add any efficiencies to the business at all. I mean our growers, except for a few areas, have plenty of options where they can elect to grow for Pilgrim's or Tyson or one of the other many competitors out there. So, to some extent, yes, they are integrated into our operations, and we want to make sure that that process flows with what we need from our income of customer basis. But from a grower's perspective, they have a lot of flexibility already. So, it's a supply-and-demand market on the grower base side, as well, and we've got to make sure that they are fairly compensated for what they are doing.

Okay. Thank you.

Thank you. Our next question will come from Pablo Zuanic from J.P. Morgan.

Good morning everyone.

Hi Pablo.

I am sorry to just maybe insist on a production front, but what I want to understand is, what is different now from a year ago? And the reason I say that, is that you and Tyson have the evidence that your production call backs lead to significant price improvements last year. They were also fueled by seasonality, right, when price went from the 70s to 85, lags went up to 50 and price went all the way up to 190? Do you have that evidence that your production call backs worked? Clearly, there are more [producers who are not] following you. On my mask, according to USDA, the industry was up 5% in the December quarter. You and Tyson are saying that your production volumes were flat. So, it means that the rest of the industry was up about 9% in the December quarter. So, there is evidence that rest of the industry is not following you. You guys are the leaders. You know that this worked last year. Well, I just can't understand why you are not doing it right now? What is it that's different? Is it just that last year we did it for the industry, and they didn't follow and now it's their turn? I mean it's not how an industry does their thing, right? I'm just trying to understand, Rick, what is there that’s different, that makes you believe that it's not going to work, or is it that you got 5% SG&A? If you got another 5%, it would just be a great operating inefficiencies? So many things to that, I don't think that question the way it has been answered. Thanks.

Yeah, I think you kind of hit on it there. I mean, you already created operating inefficiencies through your cutbacks for the prior year. It's not like we had 5% of surplus capacity that we could just reduce our operations and not feel that through our efficiencies and through our product cycle. I mean, you've got partners out there that are working for us that in some locations already have [altered] schedules because of the cutbacks. You had growers that were impacted. There are a lot of costs that we have already absorbed in that process. And if you go 5% cut on top of 5% cut, then you're saying, okay, how do you logistically do that and keep all these operations running efficiently. And also, it's a spiral to our dissolution. I mean we cannot be the ones that are out there continually reducing production, and let the other producers capitalize on that. I mean if it's 5% last year, 5% this year, 5% next year, you can see that that's a spiral to the demise of our company, which we are not willing to accept.

Thanks, that's helpful. And then just to follow up. The part that again I don't understand is when we talk about price increases in a commodity type of industry where the [spot] prices are dictated by demand and supply, it would seem that the only way that you "pass-through" cost increasing to pricing is by cut in production. But in many of your discussions you have come across, like, it’s a matter of sitting down with a trade that retailers and food service and even the spot prices, the spot type, the provision of spot priced, we can also move them up. I mean can that happen or am I wrong in thinking that that 70% of your business as market price can actually be sit down type of negotiation, I suppose to dictated by demand and supply?

I think virtually all of those discussions are based on demand and supply. And for us to sit there and say that we've got good demand relative to our supply, well that is true. There is market demand for our product. What we've got to make sure is that demand at an acceptable price is in proper balance with supply. And, we could double the price or double the volume of our chicken and cut our price in half and trust me, there would be demand out there to do that. That's not economically feasible. So, we've got to make sure that we get the supply in line with demand at an acceptable price, not just in line with what the customer wants to buy at a cheap price. That makes sense?

Yeah, that's good. Alright thanks, Rick.

Thank you our next question will come from Sam Martini, Cobalt Capital.

Good morning.

Good morning.

Two questions. First, do you have an estimate internally of what the current state of oversupply might be? What you would hope to see cut from others that would make you feel like the industry was more rational?

It's really hard to say that the faster we get to production adjustment the quicker the recovery would happen. I mean, a big step would be getting back to zero growth, okay? So that you are basically flat and I think there is plenty of demand for our product domestically as well as worldwide. And if you just stop the incremental growth, I think in relatively short order you would be where you needed to on the pricing, but to the extent you have to get accelerated price movement, you'll have to actually go further than that. And it's just going to be a function of timing, because again the cost curve is accelerating and increasing. And if the industry doesn’t react soon enough it will have to react stronger in the end.

And then, not to belabor this, but just following up on Pablo's question, your points make lots of sense to me with the question I would have for you being, the smaller players, do you have visibility into, and someone asked it earlier but it feels like looking at your balance sheet and the bet that you are kind of making, which is that you've done your part and now its time for others to do their part, when you hear Sanderson's Farms saying they are just going to expand volumes and expand volumes. It makes you wonder who else is loosing a lot of money in this industry at the same time. Do you have insight into the smaller folk's capitalization, cash burns etc.? Someone asked it a little bit differently earlier, but it seems like the gambit that you are playing is a little of dangerous one, given that you have interest to pay and CapEx to spend and you would want, shareholders would to know that you have some insight as to where the cuts incrementally are going to come from? We've heard some data from Cook, we know what Sanderson is doing. Are there others that were hopeful? Do you have a short list of folks that you think these guys are going to be the ones we are going to hear from?

I would say specifically the answer is no. There is probably one or two that you might have mentioned that's gone the other direction that we would hope to hear something from. But I think we do have some visibility in the industry. We participate in a bottom line survey through Agri Stats, and through that we see industry-wide or company profitability even though we don't know who they are, so we can get engaged of the industry as a whole and how its doing. I think that's one vehicle. You mentioned CapEx, clearly, from a cost perspective and as we reported just about every quarter, we show about 50% of our CapEx. I would call it deficiency improvement or capacity expansion of some manner, whether it's adding a new product line and not necessarily volume. So clearly, we have a fair amount of discretion in our CapEx budget. In the right circumstances, we've shown in the past that we can moderate and pull back on. Then I guess last thing is if you looked at our depreciation like we showed this quarter, we could really have roughly $2 per share of reported losses just to depreciation expense alone. So we do look at all of the different metrics, we do look at our cash and cash burn, and we do look at the industry as a whole. And as Clint mentioned and as Bob mentioned, we're just continuing to watch that and we'll make the best long-term decisions for Pilgrims.

Do you think there would be meaningful regulatory pushback given the pricing situation and the losses? I mean people had thought that concentration was high as it was in the top two and five here. Do you think that this situation would make continued consolidation sensible and maybe easier to approve given the losses that we're seeing here?

I think it would definitely aid that, yes, because it's clearly without the doubts you can say that there is not enough consolidation. There is a point that the customer is still is not on the driver seat from the negotiation perspective.

Thank you.

Thank you. Gentlemen, our last question comes from Diane Geissler, Merrill Lynch.

Follow-up on the 70%, that's currently open for pricing, could you give us an idea about what that figure would have looked like this time last year, or maybe pro forma Gold Kist or if you don't have that, just historic PPC.

Yeah. I would say this time last year; it would have been less than that, because as we mentioned Gold Kist had entered into some longer term contracts on some, what we would call, commodity-based items that we just didn't think were wise at the time. We still don't think are wise today. So it would have been less in my balance. I don't know if you've got what that would be another 10% or so, 15% I don't know. But it would have been clearly less than the 70% we're talking about today. In total historically, it probably would have been significantly less than that, maybe 20% to 25% less.

Okay. Great. Thank you very much.

Thank you. Gentlemen at this time there are no further questions in the queue.

Okay. Well, we thank you all for participating and we will see you again at the end of next quarter.

Thank you. This call is now concluded. You may now disconnect at this time. Everyone have a wonderful day.