UNITED STATES

FORM 10-Q

(MARK ONE)

Sanderson Farms, Inc.

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:

     Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes o No o

APPLICABLE ONLY TO CORPORATE ISSUERS:

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Common Stock, $1 Per Share Par Value—19,969,363 shares outstanding as of January 31, 2005.

1

INDEX

SANDERSON FARMS, INC. AND SUBSIDIARIES

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SANDERSON FARMS, INC. AND SUBSIDIARIES

See notes to condensed consolidated financial statements.

SANDERSON FARMS, INC. AND SUBSIDIARIES

See notes to condensed consolidated financial statements.

SANDERSON FARMS, INC. AND SUBSIDIARIES

See notes to condensed consolidated financial statements.

SANDERSON FARMS, INC. AND SUBSIDIARIES

NOTE 1 — BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments consisting of normal recurring accruals considered necessary for a fair presentation have been included. Operating results for the three-month period ended January 31, 2005 are not necessarily indicative of the results that may be expected for the year ending October 31, 2005.

The consolidated balance sheet at October 31, 2004 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. For further information, reference is made to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended October 31, 2004.

NOTE 2—INVENTORIES

Inventories consisted of the following:

NOTE 3–STOCK SPLIT

On January 29, 2004, the Board of Directors declared a 3 for 2 stock split to be effected in the form of a 50% stock dividend. This dividend was paid February 26, 2004 to stockholders of record on February 10, 2004. Share and per share data in this report has been adjusted to reflect this stock split. Cash was paid in lieu of fractional shares.

Note 4–NEW ACCOUNTING PRONOUNCEMENT

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4.” SFAS No. 151 amends Accounting Reserch Bulletin (“ARB”) No. 43, Chapter 4, to clarify that abnormal amounts of idle facility expense, freight handling costs and wasted materials (spoilage) should be recognized as current-period charges. In addition, SFAS No. 151 requires that allocation of fixed production overhead to inventory be based on the normal capacity of the production facilities during fiscal years beginning after June 15, 2005. The Company is currently assessing the impact

that SFAS No. 151 will have on the results of operations, financial position or cash flows.

On December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 123 (revised 2004), Share-Based Payment, which is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation. Statement 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends FASB Statement No. 95, Statement of Cash Flows. Generally, the approach in Statement 123(R) is similar to the approach described in Statement 123. However, Statement 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative.

Statement 123(R) must be adopted in the first interim or annual period beginning after June 15, 2005, irrespective of the entity’s fiscal year. We expect to adopt Statement 123(r) on July 1, 2005.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
Sanderson Farms, Inc.

We have reviewed the condensed consolidated balance sheet of Sanderson Farms, Inc. and subsidiaries as of January 31, 2005, the related consolidated statements of income and cash flows for the three-month periods ended January 31, 2005 and 2004. These financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Sanderson Farms, Inc. as of October 31, 2004, and the related consolidated statements of income, stockholders’ equity, and cash flows for the year then ended not presented herein, and in our report dated December 23, 2004, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of October 31, 2004, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ Ernst & Young LLP

New Orleans, Louisiana
February 23, 2005

Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

     The following Discussion and Analysis should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Item 7 of the Company’s Annual Report on Form 10-K for its fiscal year ended October 31, 2004.

     This Quarterly Report, and other periodic reports filed by the Company under the Securities Exchange Act of 1934, and other written or oral statements made by it or on its behalf, may include forward-looking statements, which are based on a number of assumptions about future events and are subject to various risks, uncertainties and other factors that may cause actual results to differ materially from the views, beliefs and estimates expressed in such statements. These risks, uncertainties and other factors include, but are not limited to the following:

(1) Changes in the market price for the Company’s finished products and feed grains, both of which may fluctuate substantially and exhibit cyclical characteristics typically associated with commodity markets.

(2) Changes in economic and business conditions, monetary and fiscal policies or the amount of growth, stagnation or recession in the global or U.S. economies, either of which may affect the value of inventories, the collectability of accounts receivable or the financial integrity of customers.

(3) Changes in the political or economic climate, trade policies, laws and regulations or the domestic poultry industry of countries to which the Company or other companies in the poultry industry ship product, and other changes that might limit the Company’s or the industry’s access to foreign markets.

(4) Changes in laws, regulations, and other activities in government agencies and similar organizations applicable to the Company and the poultry industry and changes in laws, regulations and other activities in government agencies and similar organizations related to food safety.

(5) Various inventory risks due to changes in market conditions.

(6) Changes in and effects of competition, which is significant in all markets in which the Company competes, and the effectiveness of marketing and advertising programs. The Company competes with regional and national firms, some of which have greater financial and marketing resources than the Company.

(7) Changes in accounting policies and practices adopted voluntarily by the Company or required to be adopted by accounting principles generally accepted in the United States.

(8) Disease outbreaks affecting the production performance and/or marketability of the Company’s poultry products.

(9) Changes in the availability and cost of labor and growers.

     Readers are cautioned not to place undue reliance on forward-looking statements made by or on behalf of Sanderson Farms. Each such statement speaks only as of the day it was made. The Company undertakes no obligation to update or to revise any forward-looking statements. The factors described above cannot be controlled by the Company. When used in this quarterly report, the words “believes”, “estimates”, “plans”, “expects”, “should”, “outlook”, and “anticipates” and similar expressions as they relate to the Company or its management are intended to identify forward-looking statements.

     The Company’s poultry operations are integrated through its control of all functions relative to the production of its chicken products, including hatching egg production, hatching, feed manufacturing, raising chickens to marketable age (“grow out”), processing, and marketing. Consistent with the poultry industry, the Company’s profitability is substantially impacted by the market prices for its finished products and feed grains, both of which may fluctuate substantially and exhibit cyclical characteristics typically associated with commodity markets. Other costs, excluding feed grains, related to the profitability of the Company’s poultry operations, including hatching egg production, hatching, growing, and processing cost, are responsive to efficient cost containment programs and management practices.

     The Company believes that value-added products are subject to less price volatility and generate higher, more consistent profit margins than whole chickens ice packed and shipped in bulk form. To reduce its exposure to market cyclicality that has historically characterized commodity chicken market prices, the Company has increasingly concentrated on the production and marketing of value-added product lines with emphasis on product quality, customer service and brand recognition. Nevertheless, market prices continue to have a significant influence on prices of the Company’s chicken products. The Company adds value to its poultry products by performing one or more processing steps beyond the stage where the whole chicken is first saleable as a finished product, such as cutting, deep chilling, packaging and labeling the product.

     The Company’s processed and prepared foods product line includes over 100 institutional and consumer packaged food items that it sells nationally and regionally, primarily to distributors, food service establishments and retailers. A majority of the prepared food items are made to the specifications of food service users.

     On January 29, 2004, the Company announced a three-for-two stock split to be effected as a 50% stock dividend. The new shares were distributed on February 26, 2004, to stockholders of record as of close of business on February 10, 2004. Per share information in this Quarterly Report reflects the stock split. Cash was paid in lieu of fractional shares.

EXECUTIVE OVERVIEW OF RESULTS

     Market prices for all poultry products showed improvement for the first quarter of fiscal 2005 as compared to the fourth quarter of fiscal 2004 but were mixed when compared to the first quarter of fiscal 2004. Although operating costs for the first quarter of fiscal 2005 still reflected the higher grain prices incurred by the Company during late fiscal 2004, the Company began to realize significant savings during December 2004 and January 2005 as favorable feed grain costs were included in cost of sales. The Company expects to benefit from lower costs of feed grains for the remainder of fiscal 2005.

RESULTS OF OPERATIONS

     Net sales for the first quarter of fiscal 2005 were $233.3 million, an increase of $6.8 million or 3.0% as compared to net sales of $226.4 during the first quarter of fiscal 2004. Net sales of poultry products were $206.7 million, an increase of $9.0 million or 4.6% during the three months ended January 31, 2005 as compared to the three months ended January 31, 2004. This increase in the net sales of poultry products is the result of an increase in the pounds of poultry products sold during the first quarter of fiscal 2005 as compared to the first quarter of fiscal 2004 of 6.7%. The additional pounds sold during the first quarter of fiscal 2005 as compared to the first quarter of fiscal 2004 resulted from an increase in the number of chickens processed of 6.4% and an increase in the average live weight of chickens processed of 2.8%. The Company’s average sale price of poultry products decreased 2.0% during the first quarter of fiscal 2005 as compared to the first quarter of fiscal 2004. Market prices for all poultry products showed improvement from the fourth quarter of fiscal 2004, but were mixed when compared to the first quarter of fiscal 2004. As measured by a simple average of the Georgia dock price for whole chickens, market prices increased 7.4% during the three months ended January 31, 2005 as compared to the three months ended January 31, 2004. However, boneless breast and breast tender prices during the quarter were approximately 9.7% and 24.6% lower than during the same quarter a year ago. Net sales of prepared food products decreased $2.2 million or 7.6% and resulted from a decrease in the pounds of prepared food products sold of approximately 7.8%.

     Cost of sales for the first quarter of fiscal 2005 were $203.8 million as compared to $183.8 million during the first quarter of fiscal 2004. The increase of $20.0 million or 10.9% pertains to the increase in the pounds of poultry products sold of 6.7% during the first quarter of fiscal 2005 as compared to the first quarter of fiscal 2004 and higher grain costs the Company incurred during the fourth quarter of fiscal 2004 which were included in the cost of poultry sold during the first quarter of fiscal 2005. While the Company’s cost of sales for the first quarter of fiscal 2005 still reflected the higher grain prices incurred in late fiscal 2004, by the end of the first quarter of fiscal 2005 the Company began to realize significant savings from feed grains. Average market prices for corn and soybean meal were 15.4% and 32.0% lower during the first quarter of fiscal 2005 as compared to the first quarter of fiscal 2004. Based on current trends, the Company expects to realize savings of between $60.0 million and $65.0 million during fiscal 2005 as compared to fiscal 2004. Cost of sales of prepared food products decreased $3.4 million as a result of the decrease in the pounds of prepared food products sold of 7.8% and lower market prices for poultry products. The prepared foods operation purchases most of its chicken from the Company’s poultry operations, and such chicken is a major component of its raw materials.

     Selling, general and administrative expenses during the first three months of fiscal 2005 as compared to the first three months of fiscal 2004 increased $1.8 million. This increase is the result of the cost of the Company’s advertising program and administrative costs incurred for the start up of the new poultry processing complex in south Georgia which the Company expects will begin operations during the fourth quarter of fiscal 2005.

     The Company’s operating income for the three months ended January 31, 2005, was $16.5 million compared to $31.4 million for the three months ended January 31, 2004. The reduction in the Company’s operating income of $14.9 million is the result of higher grain prices incurred in late fiscal 2004 and lower average sale prices of poultry products. However, the Company expects feed grain cost

to be significantly lower for the remainder of fiscal 2005 as compared to the same period during fiscal 2004. Based on grain needs already priced for fiscal 2005 and current trends in grain prices, the Company expects grain prices to be between $60.0 million and $65.0 million lower during fiscal 2005.

     Interest expense for the first quarter of fiscal 2005 was $318,000 as compared to $432,000 for first quarter of fiscal 2004, reflecting lower outstanding debt.

     The Company’s effective tax rate during the first quarter of fiscal 2005 and fiscal 2004 was 38.75%.

     Net income for the three months ended January 31, 2005 was $10.0 million, or $.50 per diluted share, compared with net income of $19.0 million, or $.96 per diluted share for the three months ended January 31, 2004.

LIQUIDITY AND CAPITAL RESOURCES

     The Company’s working capital at January 31, 2005 was $149.0 million and its current ratio was 3.7 to 1. This compares to working capital of $150.6 million and a current ratio of 3.3 to 1 as of October 31, 2004. During the first three months ended January 31, 2005, the Company spent approximately $15.5 million on planned capital projects, which includes $10.5 million on the new complex in south Georgia.

     On January 29, 2004, the Company announced a three-for-two stock split to be effected as a 50% stock dividend. The new shares were distributed on February 26, 2004, to stockholders of record as of close of business on February 10, 2004. Share and per share data have been adjusted to reflect this stock split.

     The Company’s capital budget for fiscal 2005 is approximately $126.3 million, and will be funded by cash on hand, internally generated working capital and cash flows from operations. If needed, the Company has a $100.0 million revolving line of credit available. The $126.3 million fiscal 2005 capital budget includes approximately $7.2 million in operating leases, $13.0 million for the construction of a new corporate office building, and $88.5 million on the new poultry complex in south Georgia. The Company expects operations to begin at the new complex during the fourth quarter of fiscal 2005. Without operating leases, the new office building and the Georgia complex, the Company’s capital budget for fiscal 2005 would be a maintenance level budget of approximately $17.6 million.

     The Company regularly evaluates both internal and external growth opportunities, including acquisition opportunities and the possible construction of new production assets, and conducts due diligence activities in connection with such opportunities. The cost and terms of any financing to be raised in conjunction with any growth opportunity, including the Company’s ability to raise debt or equity capital on terms and at costs satisfactory to the Company, and the effect of such opportunities on the Company’s balance sheet, are critical considerations in any such evaluation.

Critical Accounting Policies and Estimates

     The preparation of financial statements in accordance with accounting standards generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of

revenues and expenses during the reporting period. Actual results could differ from these estimates and assumptions, and the differences could be material.

     The Company’s Summary of Significant Accounting Policies, as described in Note 1 of the Notes to the Consolidated Financial Statements that are filed with the Company’s latest report on Form 10-K, should be read in conjunction with this Management’s Discussion and Analysis of Financial Condition and Results of Operations. Management believes that the critical accounting policies and estimates that are material to the Company’s Consolidated Financial Statements are those described below.

     Allowance for Doubtful Accounts

     In the normal course of business, the Company extends credit to its customers on a short-term basis. Although credit risks associated with our customers are considered minimal, the Company routinely reviews its accounts receivable balances and makes provisions for probable doubtful accounts. In circumstances where management is aware of a specific customer’s inability to meet its financial obligations to the Company, a specific reserve is recorded to reduce the receivable to the amount expected to be collected. If circumstances change (i.e., higher than expected defaults or an unexpected material adverse change in a major customer’s ability to meet its financial obligations to us), our estimates of the recoverability of amounts due us could be reduced by a material amount, and the allowance for doubtful accounts and related bad debt expense would increase by the same amount.

     A customer of the Company’s for many years filed for protection under Chapter 11 of the United States Bankruptcy Code on February 22, 2005. The Company’s exposure at the time of the filing was not material to its financial position and results of operations.

     Inventories

     Processed food and poultry inventories and inventories of feed, eggs, medication and packaging supplies are stated at the lower of cost (first-in, first-out method) or market. If market prices for poultry or feed grains move substantially lower, the Company would record adjustments to write down the carrying values of processed poultry and feed inventories to fair market value, which would increase the Company’s costs of sales.

     Live poultry inventories of broilers are stated at the lower of cost or market and breeders at cost less accumulated amortization. The cost associated with broiler inventories, consisting principally of chicks, feed, medicine and payments to the growers who raise the chicks for us, are accumulated during the growing period. The cost associated with breeder inventories, consisting principally of breeder chicks, feed, medicine and grower payments are accumulated during the growing period. Capitalized breeder costs are then amortized over nine months using the straight-line method. Mortality of broilers and breeders is charged to cost of sales as incurred. If market prices for chicks, feed or medicine or if grower payments increase (or decrease) during the period, the Company could have an increase (or decrease) in the market value of its inventory as well as an increase (or decrease) in costs of sales. Should the Company decide that the nine month amortization period used to amortize the breeder costs is no longer appropriate as a result of operational changes, a shorter (or longer) amortization period could increase (or decrease) the costs of sales recorded in future periods. High mortality from disease or extreme temperatures would result in abnormal charges to cost of sales to write-down live poultry inventories.

     Long-Lived Assets

     Depreciable long-lived assets are primarily comprised of buildings and machinery and equipment. Depreciation is provided by the straight-line method over the estimated useful lives, which are 15 to 39 years for buildings and 3 to 12 years for machinery and equipment. An increase or decrease in the estimated useful lives would result in changes to depreciation expense.

     The Company continually reevaluates the carrying value of its long-lived assets for events or changes in circumstances that indicate that the carrying value may not be recoverable. As part of this re-evaluation, the Company estimates the future cash flows expected to result from the use of the asset and its eventual disposal. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized to reduce the carrying value of the long-lived asset to the estimated fair value of the asset. If the Company’s assumptions with respect to the future expected cash flows associated with the use of long-lived assets currently recorded change, then the Company’s determination that no impairment charges are necessary may change and result in the Company recording an impairment charge in a future period. The Company did not identify any indicators of impairment during the current fiscal period.

     Accrued Self Insurance

     Insurance expense for workers’ compensation benefits and employee-related health care benefits are estimated using historical experience and actuarial estimates. Stop-loss coverage is maintained with third party insurers to limit the Company’s total exposure. Management regularly reviews the assumptions used to recognize periodic expenses. If historical experience proves not to be a good indicator of future expenses, if management were to use different actuarial assumptions, or if there is a negative trend in the Company’s claims history, there could be a significant increase or decrease in cost of sales depending on whether these expenses increased or decreased, respectively.

     Income Taxes

     The Company determines its effective tax rate by estimating its permanent differences resulting from differing treatment of items for financial and income tax purposes. The Company is periodically audited by taxing authorities and considers any adjustments made as a result of the audits in considering the tax expense. Any audit adjustments affecting permanent differences could have an impact on the Company’s effective tax rate.

     Contingencies

     The Company is a party to a number of legal proceedings as discussed in Note 10 of our consolidated financial statements filed with our most recent Form 10-K. We recognize the costs of legal defense in the periods incurred. A determination of the amount of reserves required, if any, for these matters is made after considerable analysis of each individual case. At this time, the Company has not accrued any reserve for any of these matters. Further reserves may be required due to changes in the Company’s assumptions, the effectiveness of legal strategies, or other factors beyond the Company’s control. Future results of operations may be materially affected by the creation of or changes to reserves.

     New Accounting Pronouncements

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4.” SFAS No. 151 amends Accounting Research Bulletin

(“ARB”) No. 43, Chapter 4, to clarify that abnormal amounts of idle facility expense, freight handling costs and wasted materials (spoilage) should be recognized as current-period charges. In addition, SFAS No. 151 requires that allocation of fixed production overhead to inventory be based on the normal capacity of the production facilities during fiscal years beginning after June 15, 2005. The Company is currently assessing the impact that SFAS No. 151 will have on the results of operations, financial position or cash flows.

On December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 123 (revised 2004), Share-Based Payment, which is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation. Statement 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends FASB Statement No. 95, Statement of Cash Flows. Generally, the approach in Statement 123(R) is similar to the approach described in Statement 123. However, Statement 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative.

Statement 123(R) must be adopted in the first interim or annual period beginning after June 15, 2005, irrespective of the entity’s fiscal year. We expect to adopt Statement 123(r) on July 1, 2005.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

     The Company is a purchaser of certain commodities, primarily corn and soybean meal, for use in manufacturing feed for its chickens. As a result, the Company’s earnings are affected by changes in the price and availability of such feed ingredients. Feed grains are subject to volatile price changes caused by factors described below that include weather, size of harvest, transportation and storage costs and the agricultural policies of the United States and foreign governments. The price fluctuations of feed grains have a direct and material effect on the Company’s profitability.

     Generally, the Company purchases its corn, soybean meal and other feed ingredients for prompt delivery to its feed mills at market prices at the time of such purchases. The Company sometimes will purchase feed ingredients for deferred delivery that typically ranges from one month to twelve months after the time of purchase. The grain purchases are made directly with our usual grain suppliers, which are companies in the regular business of supplying grain to end users, and do not involve options to purchase. Such purchases occur when senior management concludes that market factors indicate that prices at the time the grain is needed are likely to be higher than current prices, or where, based on current and expected market prices for the Company’s poultry products, management believes it can purchase feed ingredients at prices that will allow the Company to earn a reasonable return for its shareholders. Market factors considered by management in determining whether or not and to what extent to buy grain for deferred delivery include:

	•	Current market prices;
	•	Current and predicted weather patterns in the United States, South America, China and other grain producing areas, as such weather patterns might affect the planting, growing, harvesting and yield of feed grains;
	•	The expected size of the harvest of feed grains in the United States and other grain producing areas of the world as reported by governmental and private sources;

	•	Current and expected changes to the agricultural policies of the United States and foreign governments;
	•	The relative strength of United States currency and expected changes therein as it might impact the ability of foreign countries to buy United States feed grain commodities;
	•	The current and expected volumes of export of feed grain commodities as reported by governmental and private sources;
	•	The current and expected use of available feed grains for uses other than as livestock feed grains (such as the use of corn for the production of ethanol, which use is impacted by the price of crude oil); and
	•	Current and expected market prices for the Company’s poultry products.

     The Company purchases physical grain, not financial instruments such as puts, calls or straddles that derive their value from the value of physical grain. Thus, the Company does not use derivative financial instruments as defined by SFAS 133, “Accounting for Derivatives for Instruments and Hedging Activities.” The Company does not enter into any derivative transactions or purchase any grain-related contracts other than the physical grain contracts described above.

     The cost of feed grains is recognized in cost of sales, on a first-in-first-out basis, at the same time that the sales of the chickens that consume the feed grains are recognized.

     The Company’s interest expense is sensitive to changes in the general level of U.S. interest rates. The Company maintains certain of its debt as fixed rate in nature to mitigate the impact of fluctuations in interest rates. The fair value of the Company’s fixed rate debt approximates the carrying amount at January 31, 2005. At January 31, 2005, none of the Company’s outstanding debt had a variable interest rate. Management believes the potential effects of near-term changes in interest rates on the Company’s debt is not material.

     The Company is a party to no other market risk sensitive instruments requiring disclosure.

Item 4. Controls and Procedures

     The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s Securities Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

     An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of January 31, 2005. There have been no changes in the Company’s

internal control over financial reporting during the fiscal quarter ended January 31, 2005 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

     A lawsuit filed on May 19, 2003, on behalf of 74 individual plaintiffs in the United States District Court for the Southern District of Mississippi alleging an “intentional pattern and practice of race discrimination and hostile environment in violation of Title VII and Section 1981 rights” is described in detail under “Item 3. Legal Proceedings” in the Company’s Annual Report on Form 10-K for the year ended October 31, 2004. This lawsuit was severed into six separate causes of action by order of the court dated August 26, 2004. A case management conference for each of the six cases was held on December 28, 2004, during which various procedural issues related to discovery were settled. Discovery in each case will commence in accordance with agreements reached at the conference.

Item 4. Submission of Matters to a Vote of Security Holders

     At the 2005 Annual Meeting of Shareholders of Sanderson Farms, Inc. held February 17, 2005, the shareholders elected the following persons to the Company’s Board of Directors to serve until the 2008 Annual Meeting of Shareholders, or until their successors are elected and qualified, by the votes indicated below:

     By a vote of 17,177,640 for, 572,497 against, and 13,258 abstaining, the shareholders ratified the Board’s selection of Ernst & Young LLP as the Company’s independent auditors for the fiscal year ending October 31, 2004.

     By a vote of 11,752,251 for, 1,663,400 against and 642,739 abstaining, the shareholders approved a Stock Incentive Plan for directors, executive officers and other key managers of the Company. See Exhibit 10.2.

Item 5. Other Information

     (a) The following information is provided in response to Item 1.01 of Form 8-K, Entry into a Material Definitive Agreement, in lieu of a separate filing of Form 8-K for February 17, 2005.

     On February 17, 2005, the Registrant’s shareholders approved (see Item 4 above), and its board of directors thereafter adopted, the Sanderson Farms, Inc. and Affiliates Stock Incentive Plan, which became effective on that date.

     The objectives of the Plan are to align closely the long-term financial interests of the Registrant’s management with those of its shareholders; to provide management with an equity ownership commensurate with the Company’s

performance; to attract, motivate and retain key employees and non-employee directors; and to provide an incentive to management for continued employment.

     The number of shares of Common Stock reserved for purposes of the Plan is 2,250,000, which includes shares that are used for awards still outstanding under the Registrant’s Stock Option Plan. No further awards may be made under the Stock Option Plan.

     The following types of awards may be made under the Plan by the Plan administrator, which is the Board of Directors or, to the extent the Board delegates its authority, its Compensation Committee.

	•	Incentive stock options,
	•	Nonqualified stock options,
	•	Stock appreciation rights,
	•	Restricted stock (limited to 562,500 shares),
	•	Restricted stock units,
	•	Performance shares,
	•	Phantom stock units,
	•	Share purchase rights, and
	•	Other stock-based awards.

     Eligible participants are directors, executive officers and other key employees of the Registrant and its subsidiaries who occupy responsible managerial and professional positions and have the capability of making substantial contributions to the success of the Registrant.

     The Plan is further described in, and a copy of it is appended as Exhibit B to, the Registrant’s Proxy Statement (and Supplement thereto) for its Annual Shareholders Meeting held February 17, 2005. The foregoing information about the Plan is necessarily not complete, and reference is made to the description and copy contained in the Proxy Statement (and Supplement thereto), such information being qualified in its entirety by such reference. The Proxy Statement and Supplement are available on the SEC’s website, www.sec.gov, and on the Registrant’s website, www.sandersonfarms.com.

     (b) On February 17, 2005, the Company’s Board of Directors adopted minor amendments to the charter for the Board’s Audit Committee. The charter, as amended, is attached as Exhibit 99.1.

     Item 6. Exhibits

     The following exhibits are filed with this report.

     Exhibit 3.1 Articles of Incorporation of the Registrant dated October 19, 1978. (Incorporated by reference to Exhibit 4.1 filed with the registration statement on Form S-8 filed by the Registrant on July 15, 2002, Registration No. 333-92412.)

     Exhibit 3.2 Articles of Amendment, dated March 23, 1987, to the Articles of Incorporation of the Registrant. (Incorporated by reference to

Exhibit 4.2 filed with the registration statement on Form S-8 filed by the Registrant on July 15, 2002, Registration No. 333-92412.)

     Exhibit 3.3 Articles of Amendment, dated April 21, 1989, to the Articles of Incorporation of the Registrant. (Incorporated by reference to Exhibit 4.3 filed with the registration statement on Form S-8 filed by the Registrant on July 15, 2002, Registration No. 333-92412.)

     Exhibit 3.4 Certificate of Designations of Series A Junior Participating Preferred Stock of the Registrant dated April 21, 1989. (Incorporated by reference to Exhibit 4.4 filed with the registration statement on Form S-8 filed by the Registrant on July 15, 2002, Registration No. 333-92412.)

     Exhibit 3.5 Article of Amendment, dated February 20, 1992, to the Articles of Incorporation of the Registrant. (Incorporated by reference to Exhibit 4.5 filed with the registration statement on Form S-8 filed by the Registrant on July 15, 2002, Registration No. 333-92412.)

     Exhibit 3.6 Article of Amendment, dated February 27, 1997, to the Articles of Incorporation of the Registrant. (Incorporated by reference to Exhibit 4.6 filed with the registration statement on Form S-8 filed by the Registrant on July 15, 2002, Registration No. 333-92412.)

     Exhibit 3.7 Bylaws of the Registrant, amended and restated as of February 26 ,2004. (Incorporated by reference to Exhibit 3.7 filed with the Registrant’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2004.)

     Exhibit 10.1 Sanderson Farms, Inc. Bonus Award Program effective November 1, 2004 (incorporated by reference to Exhibit 10 to the Registrant’s Current Report (Form 8-K) for December 2, 2004

     Exhibit 10.2 Sanderson Farms, Inc. and Affiliates Stock Incentive Plan (incorporated by reference to Exhibit B to the Registrant’s definitive Proxy Statement for its Annual Meeting held February 17, 2005.)

Exhibit 15* Accountants’ Letter re: Unaudited Financial Information.

Exhibit 31.1* Certification of Chief Executive Officer.

Exhibit 31.2* Certification of Chief Financial Officer.

Exhibit 32.1** Section 1350 Certification.

Exhibit 32.2** Section 1350 Certification.

Exhibit 99.1* Audit Committee Charter, as amended February 17, 2005.

** Furnished herewith.

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

INDEX TO EXHIBITS

** Furnished herewith.

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