NOTE 2—INVENTORIES

Inventories consisted of the following:


	April 30,		October 31,
	2011		2010
	(In thousands)
Live poultry-broilers and breeders	$	132,281	$	96,962
Feed, eggs and other		31,132		27,732
Processed poultry		33,434		14,255
Processed food		9,756		8,611
Packaging materials		7,241		5,729

	$	213,844	$	153,289

The Company recorded an adjustment to value its live broilers at April 30, 2011 at market values rather than at cost. The value of live chickens, the cost for which are accumulated during the life of a flock as each flock is fed and cared for, is recorded at the lower of cost or market. Because market prices for corn and soybean meal have increased substantially since October 31, 2010, the projected cost to complete, process and sell broilers included in live inventory at April 30, 2011 is expected to exceed the market value for the finished product. Therefore, the Company’s results for the second quarter of fiscal 2011 include a charge of $6.0 million before income taxes to reduce the value of live inventories from cost to market. The Company’s live broiler inventory at October 31, 2010 was recorded at cost because the projected cost at that time to complete, process and sell broilers in inventory at October 31, 2010 was not expected to exceed the market value of the finished product. The Company recorded the inventory of breeders at October 31, 2010 and April 30, 2011 at cost, less accumulated amortization.

The Company’s inventory of live poultry was higher at April 30, 2011 as compared to October 31, 2010 due to significantly higher grain prices and additional units of broilers in inventory at April 30, 2011 as compared to October 31, 2010. The increase in the number of live broilers in inventory at April 30, 2011 resulted from fewer units of live broilers in inventory at October 31, 2010 in anticipation of the holiday season when demand for chicken is historically at its lowest point in the year, as well as having additional units of live poultry in inventory at April 30, 2011 at the new complex in Kinston and Lenoir County, North Carolina.

The increase in inventory of processed poultry resulted primarily from additional units of export product in inventory at April 30, 2011 as compared to October 31, 2010, which resulted from the timing of export sales and additional units of processed poultry at the Company’s new complex in Kinston and Lenoir County, North Carolina.

The increase in packaging materials resulted primarily from additional units in inventory at April 30, 2011 as compared to October 31, 2010 at the Company’s new complex in Kinston and Lenoir County, North Carolina.

For the six months ending April 30, 2011 cost of sales include an adjustment of $22.3 million to record live broiler inventory at market value as of January 31, 2011. The adjustment was necessary as of January 31, 2011 because the projected cost at that time to complete, process and sell the broilers was not expected to exceed the market value of finished product.