UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(MARK ONE)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the quarterly period ended April 30, 2005

OR

For the transition period from                     to                    

Commission file number 1-14977

Sanderson Farms, Inc.

(601) 649-4030

Not Applicable

     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 20,380,905 shares outstanding as of April 30, 2005.

2nd quarter Form 10-Q

INDEX

SANDERSON FARMS, INC. AND SUBSIDIARIES

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SANDERSON FARMS, INC. AND SUBSIDIARIES

See notes to condensed consolidated financial statements.

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SANDERSON FARMS, INC. AND SUBSIDIARIES

See notes to condensed consolidated financial statements.

4

SANDERSON FARMS, INC. AND SUBSIDIARIES

See notes to condensed consolidated financial statements.

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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 and six-month periods ended April 30, 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–NEW STOCK PLANS

The following describes major changes to benefit plans which have occurred since October 31, 2004. Refer to Notes 7 and 8 of our October 31, 2004 audited financial statements for further information on our employee benefit plans and stock option plans.

On February 17, 2005, the shareholders of the Company approved the Sanderson Farms, Inc. and Affiliates Stock Incentive Plan (the “Plan”). The Plan allows the Company’s board of directors to grant certain incentive awards including stock options, stock appreciation rights, restricted stock, and other similar awards. The Company may award up to 2,250,000 shares under the Plan. Incentive awards granted under the Plan are accounted for in accordance with APB Opinion No. 25, “Accounting for Stock issued to Employees” and related interpretations.

Pursuant to the Plan, on February 23, 2005, the Company’s board of directors approved agreements for the issuance of restricted stock to directors, executive officers and other key employees as designated by the Company’s board of directors. Restricted stock granted to non-employee directors vests three years from the date of grant and all other restricted stock granted pursuant to the Plan vests ten years from the date of grant. The vesting schedule is accelerated upon death, disability or retirement of the participant or upon a change in control, as defined. Restricted stock grants are valued based upon the closing market price of the Company’s common stock on the date of grant. Restricted stock grants are recorded as unearned compensation and are recognized as compensation expense over the vesting period. During the quarter ended April 30, 2005, the Company issued a total of 354,000 shares of restricted stock valued at $44.56 per share. Compensation expense related to restrict stock grants totaled $495,000 in the quarter ended April 30, 2005.

Also on February 23, 2005, the Company’s board of directors approved the Management Share Purchase Plan agreements (the “Purchase Plan”) that authorized the issuance shares of restricted stock to the Company’s directors, executive officers and other key employees as designated by the Company’s board of directors. Pursuant to the Purchase Plan, non-employee directors may elect to receive up to 100% of their annual retainer and meeting fees in the form of restricted stock. Other participants may elect to receive up to 15% of their salary and up to 75% of their bonus in the form of restricted stock. The purchase price of the restricted stock is the

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closing market price of the Company’s common stock on the date of purchase. The Company makes matching contributions of 25% of the restricted shares purchased by participants. Restricted stock issued pursuant to the Purchase Plan vests after three years or immediately upon death, disability, retirement or change in control, as defined. If a participant’s employment is terminated for any other reason prior to the three-year vesting period, the participant forfeits the matching contribution and the Company may, at its option, repurchase restricted stock purchased by the participant at the price paid by the participant. Matching contributions are recorded as unearned compensation and are recognized as compensation expense over the vesting period. During the quarter ended April 30, 2005, the participants purchased a total of 930 shares of restricted stock pursuant to the Purchase Plan valued at $43.21 per share and the Company issued 217 matching shares valued at $43.21 per share. Compensation expense related to the Company’s matching contribution totaled approximately $1,000 in the quarter ended April 30, 2005.

NOTE 4–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 5-EARNINGS PER SHARE

Basic net income per share was calculated by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted net income per share was calculated by dividing net income by the weighted-average number of common shares outstanding during the period plus the dilutive effects of stock options and restricted stock outstanding. There were 126,000 and 219,000 weighted average dilutive shares outstanding for the three months ended April 30, 2005 an April 30, 2004, respectively. For the six months ended April 30, 2005 and 2004 there were 139,000 and 238,000 weighted average dilutive shares outstanding, respectively. The calculation of dilutive net income per share did not include restricted stock for the quarter and the six months ended April 30, 2005 because their inclusion would be anti-dilutive.

NOTE 6–NEW ACCOUNTING PRONOUNCEMENT

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

In December, 2004, the FASB issued SFAS Statement No. 123 (revised 2004), “Share-Based Payment”, which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation”. SFAS No. 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS No. 95, Statement of Cash Flows. Generally, the approach in Statement 123(R) is similar to the approach described in SFAS No. 123. However, SFAS No. 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. The Company is required to adopt SFAS No. 123(R) in the first quarter of fiscal 2006.

As permitted by SFAS No. 123, the Company currently accounts for share-based payments to employees using APB 25’s intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options. The impact of adoption of SFAS No. 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had we adopted SFAS No. 123(R) in prior periods, the impact of that standard would have approximated the impact of SFAS No. 123 as described in the disclosure of pro forma net income and earnings per share in Note 1 to our October 31, 2004 audited financial statements. SFAS No. 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. While the Company cannot estimate what those amounts will be in the future (because they depend on, among other things, when employees exercise stock options), the income tax benefits of such deductions were $666,000 and $1,709,000 for the three months ended April 30, 2005 and 2004, respectively, and $773,000 and $2,729,000 for the six months ended April 30, 2005 and 2004, respectively.

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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 April 30, 2005, and the related condensed consolidated statements of income for the three-month and six-month periods ended April 30, 2005 and 2004, and the condensed consolidated statements of cash flows for the six-month periods ended April 30, 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
May 20, 2005

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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.

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     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 second quarter and first six months of fiscal 2005 as compared to the fourth quarter of fiscal 2004 but were lower when compared to the same periods 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 the later part of the first quarter of fiscal 2005 as favorable feed grain costs were included in cost of sales. While the Company does not expect to experience the record high prices for poultry products it enjoyed during the summer of 2004, the Company expects to benefit from lower costs of feed grains for the remainder of fiscal 2005.

RESULTS OF OPERATIONS:

The Company’s net sales for the second quarter of fiscal 2005 were $259.2 million as compared to $272.7 million during the second quarter of fiscal 2004, a decrease of $13.5 million. Net sales of poultry products decreased $13.1 million or 5.3%, which was the result of a decrease in the Company’s average sales price of poultry products of 12.1% offset by an increase in the pounds of poultry products sold of 7.7%. The increase in the pounds of poultry sold was due to an increase in the average live weight of chickens sold of 1.25% and an increase in sales of certain products sold in countries in the Far East. During the second quarter of fiscal 2005, market prices for poultry products decreased as compared to the second quarter of fiscal 2004. For example, market prices for boneless breast meat and tenders decreased 24.6% and 28.9%, respectively for the second quarter. Market prices for wings and leg quarters were also down, averaging 14.1% and 6.4% lower during the second quarter of fiscal 2005 as compared to the second quarter of fiscal 2004. Net sales of prepared food products decreased $464,000 or 1.9% during the second quarter of fiscal 2005 and resulted from a decrease in the pounds of prepared food products sold of 6.9% offset by a 5.4% increase in the average sales price.

For the six months ended April 30, 2005, the Company’s net sales were $492.5 million as compared to $499.2 million, a decrease of $6.7 million or 1.3%. The Company’s net sales of poultry products sold during the first six months of fiscal 2005 as compared to the first six months of fiscal 2004 decreased $4.0 million or .9%. The Company’s pounds of poultry products sold increased 7.2% during the first half of fiscal 2005 as compared to the pounds of poultry products sold during the first half of fiscal 2004. This increase in the pounds of poultry products sold resulted from an increase of 2.5% in the number of chickens sold, a 2.0% increase in the average live weight of chickens sold and favorable demand for certain products sold to countries in the Far East. Despite the increase in the pounds of poultry products sold, net sales decreased as a result of lower prices for the Company’s poultry products. Although a simple average of the Georgia dock price for whole chickens increased 4.2%, market prices for boneless breast meat and breast tender prices for the six months were down 18.6% and 27.5%, respectively. In addition, market prices for wings and leg quarters were down for the first six months of fiscal 2005 as compared to the first six months of fiscal 2004 by 5.6% and 3.3%, respectively. Net sales of prepared food products decreased $2.6 million or 4.9% during the first half of fiscal 2005 as compared to the first half of fiscal 2004 primarily as the result of a decrease in the pounds of prepared food products sold.

Cost of sales for the second quarter of fiscal 2005 was approximately $200.0 million, a decrease of $3.5 million or 1.7%. The Company’s cost of poultry products sold during the three months ended April 30, 2005 was $178.1 million, or an increase of $1.6 million, which is the result of the increase in the pounds of poultry products sold of 7.7%, offset by lower grain costs. The average cost of sales of poultry products per pound decreased approximately 6.3% during the second quarter of fiscal 2005 due to lower cost of feed grains. Market prices for corn and soybean meal during the second quarter of fiscal 2005 were significantly lower, by 25.4% and 33.6%, respectively. For the second quarter of fiscal 2005 as compared to the second quarter of fiscal 2004, cost of sales of the Company’s prepared foods operation decreased $5.1 million or 19.0%. This decrease is a result of a decrease in the price of poultry products, which is a primary raw material for the prepared foods division, and to a lesser extent, a decrease in the pounds of prepared food products sold. The prepared foods operation purchases most of its chicken from the Company’s poultry operations.

For the six months ended April 30, 2005 the Company’s cost of sales was $403.7 million, an increase of $16.4 million or 4.2% as compared to the Company’s cost of sales for the same period during fiscal 2004. Cost of sales of poultry products increased $25.0

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million or 7.5% during the first six months of fiscal 2005 as compared to the first six months of fiscal 2004. This increase in the Company’s cost of sales of poultry products resulted from an increase in the pounds of poultry products sold of 7.2% and higher grain costs the Company incurred during the fourth quarter of fiscal 2004, which costs 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 six months 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 21.0% and 32.9% lower during the first half of fiscal 2005 as compared to the first half of fiscal 2004. Cost of sales of prepared food products decreased $8.5 million as a result of the decrease in the pounds of prepared food products sold of 7.3% and lower prices for poultry products.

Selling general and administrative costs increased $2.1 million and $3.9 million during the three-month and six-month periods ended April 30, 2005 as compared to the same periods in fiscal 2004. The increases are the result of the start-up of the new poultry complex in south Georgia and increased advertising costs. The Company will continue to incur costs for training and other start-up related expenditures through the remainder of fiscal 2005.

The Company’s operating income for the three months ended April 30, 2005, was $42.8 million, a decrease of $12.2 million when compared to the Company’s operating income for the three months ended April 30, 2004. For the first half of fiscal 2005 as compared to the first half of fiscal 2004 the Company’s operating income decreased $27.0 million to $59.3 million. The lower operating margins for the three- and six-month periods ended April 30, 2005 resulted from lower prices for the Company’s poultry products, higher grain prices incurred in late fiscal 2004, which negatively impacted earnings in the first quarter of fiscal 2005, and administrative costs associated with the start-up of the new complex in Moultrie and Adel Georgia. The Company began to benefit from favorable market prices for feed grains towards the end of the first quarter and into the second quarter of fiscal 2005. The Company expects feed grain costs 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 market trends in grain prices, the Company expects grain costs to be between $60.0 million and $65.0 million lower during fiscal 2005 as compared to the previous year.

Interest expense for the second quarter of fiscal 2005 decreased $432,000 as compared to the second quarter of fiscal 2004. Interest expense for the first six months of fiscal 2005 decreased $546,000 as compared to the first six months of fiscal 2004. The decrease in interest expense during fiscal 2004 resulted from interest capitalized to the cost of construction of the new complex in south Georgia, and the new general office facility under construction in Laurel, Mississippi and lower outstanding debt.

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

Net income for the second quarter of fiscal 2005 was $26.5 million or $1.32 per fully diluted share as compared to $33.4 million or $1.67 per fully diluted share during the second quarter of fiscal 2004. Net income for the first half of fiscal 2005 was $36.6 million or $1.82 per fully diluted share as compared to $52.4 million or $2.64 per fully diluted share for the first six months of fiscal 2004. During the first quarter of fiscal 2004, the Company recognized $177,000, net of income taxes, for Sanderson Farms’ share in the partial settlement of lawsuits against vitamin and methionine suppliers. The Company has not received any related recoveries, nor does the Company expect to receive any during fiscal 2005.

LIQUIDITY AND CAPITAL RESOURCES

     The Company’s working capital at April 30, 2005 was $136.6 million and its current ratio was 3.2 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 six months ended April 30, 2005, the Company spent approximately $59.7 million on planned capital projects, which includes $45.7 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 $132.2 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 $132.2 million fiscal 2005 capital budget includes approximately $7.2 million in operating leases, $13.0 million for the

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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 August 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 $23.5 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.

     One of the Company’s long standing customers filed for protection under Chapter 11 of the United States Bankruptcy Code on February 22, 2005. The Company’s exposure to that customer 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 chickens, 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.

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     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 evaluates 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 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 Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4.” SFAS No. 151 amends Accounting Research Bulletin 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.

In December, 2004, the FASB issued SFAS Statement No. 123 (revised 2004), “Share-Based Payment”, which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation”. SFAS No. 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS No. 95, Statement of Cash Flows. Generally, the approach in Statement 123(R) is similar to the approach described in SFAS No. 123. However, SFAS No. 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. The Company is required to adopt SFAS No. 123(R) in the first quarter of fiscal 2006.

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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 April 30, 2005. At April 30, 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

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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 April 30, 2005. There have been no changes in the Company’s internal control over financial reporting during the fiscal quarter ended April 30, 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 4. Submission of Matters to a Vote of Security Holders

     The Company held its annual meeting of shareholders on February 17, 2005. For a description of the matters voted on at the meeting, please see Part II, Item 4 of the Company’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2005.

     Item 6. Exhibits and Reports on Form 8-K

(a) 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 December 2, 2004. (Incorporated by reference to Exhibit 3 filed with the Registrant’s Current Report on Form 8-K on December 8, 2004.)

     Exhibit 10.1 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 10.2 Form of Restricted Stock Agreement between the Registrant and its non-employee directors who are granted restricted stock. (Incorporated by reference to Exhibit 10.1 filed with the Registrant’s Current Report on Form 8-K on March 1, 2005.)

     Exhibit 10.3 Form of Restricted Stock Agreement between Registrant and its officers and employees who are granted restricted stock. (Incorporated by reference to Exhibit 10.2 filed with the Registrant’s Current Report on Form 8-K on March 1, 2005.)

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     Exhibit 10.4 Form of Agreement between Registrant and its non-employee directors who participate in its management share purchase plan. (Incorporated by reference to Exhibit 10.3 filed with the Registrant’s Current Report on Form 8-K on March 1, 2005.)

     Exhibit 10.5 Form of Agreement between Registrant and its officers and employees who participate in its management share purchase plan. (Incorporated by reference to Exhibit 10.4 filed with the Registrant’s Current Report on Form 8-K on March 1, 2005.)

     Exhibit 10.6* Agreement dated May 18, 2005 and effective February 27, 2005 through December 31, 2007 between Sanderson Farms, Inc. (Production Division) and the United Food and Commercial Workers, Local 1529, AFL-CIO, relating to certain of the Company’s McComb, Mississippi production division employees.

     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.

** Furnished herewith.

(b) The following current report on Form 8-K was filed during the three months ended April 30, 2005:

     On March 1, 2005, the Company filed a current report on Form 8-K dated February 23, 2005 reporting, pursuant to Item 1.01, the approval of the Company’s Board of Directors of the forms of four agreements for use under its Stock Incentive Plan. The following four form agreements were filed with the Report:

	•	Restricted Stock Agreement (Non-Employee Director)
	•	Restricted Stock Agreement (Management Employee)
	•	Share Purchase Agreement (Management Share Purchase Plan (Non-Employee Director Agreement))
	•	Share Purchase Agreement (Management Share Purchase Plan (Management Employee))

     The current report also furnished, pursuant to Item 2.02, a press release announcing its earnings for the first fiscal quarter ended January 31, 2005 and a transcript of the Company’s conference call discussing its earnings for the quarter. The report contained the following unaudited financial statements:

	•	Condensed consolidated balance sheets – October 31, 2004 and January 31, 2005
	•	Condensed consolidated statements of income – Three months ended January 31, 2005 and 2004

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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.

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INDEX TO EXHIBITS

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** Furnished herewith.

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