Federal Budget Threat Ripples
02/21/2013| 05:15pm US/Eastern
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The commercial impact of the U.S. federal budget impasse continued to deepen Thursday, with more layoff notices by military contractors as well as potential disruption to some commodity markets.
Companies with large federal contracts and those relying on government oversight continued to make contingency plans ahead of the automatic spending cuts due to come into force on March 1, with little sign that Congressional leaders will agree on a deal to avoid the so-called sequester.
The head of poultry producer Sanderson Farms Inc. (>> Sanderson Farms, Inc.) gave a stark warning of the unintended consequences on its business if the U.S. Department of Agriculture furloughs meat plant inspectors.
Mr. Sanderson said chickens that could not be processed would likely die from overcrowding in chicken houses, or would have to be killed so the company could limit losses.
"What are you going do with 155, 160 million chicks a week?" Mr. Sanderson said on a call with analysts. "I don't think they have thought about that in Washington."
The prospect of fewer government inspectors also led CME Group Inc. (>> CME Group Inc) to warn clients on Thursday that some of its livestock and dairy futures contracts could be affected.
The exchange operator said it was monitoring the situation and flagged that potential disruption to USDA data reports from budget cuts could hit the system it uses to calculate futures prices, as well as the physical delivery of livestock used to settle contracts.
Defense contractors continue to take the brunt of the budget impasse, and UK-based BAE Systems PLC (BA.LN, BAESY)disclosed Thursday it had warned 3,500 staff at four U.S. naval yards that their jobs could be at risk.
BAE is the largest overseas contractor to the Pentagon, and said it could lose around GBP1 billion in revenue from the latest round of proposed cuts, though like rivals it's awaiting more information on how they might be applied.
Navy and army leaders have already said the initial brunt will be felt on maintenance, training and other services, rather than large-scale procurement projects such as new ships or aircraft.
Linda Hudson, head of BAE's U.S. arm, said on a call with analysts Thursday that it would be very difficult for one of the services to "just slash a program," unless the existing law is changed.
The head of Boeing Co.'s (>> The Boeing Company) defense unit said Thursday the company was preparing for a "worst-case" outcome that would see between $100 billion and $300 billion in Pentagon cuts over the next decade.
"Call it half-a-sequester," said Dennis Muilenburg, chief executive of Boeing Defense and Space. "We are still hopeful alternatives to a full-up sequester will be found."
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