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Doctors have long hailed breakfast as the most important meal of the day for nutrition reasons, but increasingly, investors are citing the meal as a crucial pillar in restaurant sales.

At McDonald’s, the biggest restaurant chain in the world, breakfast sales account for about a quarter of total sales, which were $5.61 billion in its first quarter. The fast food giant’s breakfast selections (led by the iconic Egg McMuffin), have been so successful that some have speculated that it will offer the items throughout the day, rather than ceasing the service at lunchtime to switch to burgers. The company said that while it was looking for ways to provide its items to customers, it had no “immediate plans” to offer breakfast all day.

When it reported its February comparable sales on March 10, McDonald’s cited its “market-leading breakfast” and premium coffee products as major drivers of its 8.3% increase. It’s logical. Deutsche Bank said that “core breakfast purchases” and extended hours “have driven strong comparable sales in the U.S. for the last five years.”

While the fast food giant faces early-morning competition from Burger King, Chick-fil-A and others it easily maintains the largest piece of the breakfast market share, a lead it’s looking to widen.

On Monday, the company introduced a “Southern Chicken Biscuit” sandwich to its national menu, following test trials in select markets across the country. The sandwich sells for $2.79 a pop in New York City ($4.09 for a meal). Though specific sales information weren’t available, they were so popular at a McDonald’s located in Manhattan’s financial district that the wait for them was about 10 minutes. (Location’s average serve time: 46 seconds.) Buckingham Research forecast a 1.5% increase in second-quarter comparable sales, which it said was conservative because of the launch of the product.

McDonald’s, which doesn’t offer product-specific sales estimates, said that “from what we’ve seen in test markets, we know that this has been an extremely popular menu item.”

The Southern Chicken Biscuit is exactly what it sounds like. It is a piece of breaded chicken on a biscuit, essentially identical to Chick-fil-A’s “Chicken Biscuit” product. There is no sauce on the McDonald’s offering, though its lunchtime counterpart (the Southern Style Chicken Sandwich), has pickles.

Before any new menu option can add to a company’s bottom line, it has to pass an important test: taste. The Southern Chicken Biscuit tastes exactly like a piece of fast food chicken on a doughy fast food biscuit. There’s not much to it, and its 2-inch diameter is unlikely to quiet hunger pangs. The hypothetical hungry man might need to order two or even three to feel full. Of course, that could be the idea all along.

Profits in the chicken industry are as bad as they have ever been, and the culprit seems to be ethanol.

Pilgrim’s Pride Corp., the Pittsburg, Texas-based producer of prepared and fresh chicken and Turkey, said Wednesday that it will close a chicken-processing complex and six of its 13 distribution centers to curtail losses in the face of an oversupply of chicken and record-high costs for corn, soybean meal and other feed ingredients. Pilgrim’s said the closures, which will result in the loss of 1,100 jobs, are “in response to the crisis facing the U.S. chicken industry from soaring feed-ingredient costs resulting from corn-based ethanol production.”

The boom in the ethanol business and the increased use of corn in ethanol production, along with growing demand for food, have sent prices of corn, grain, wheat and many other food commodities soaring, hurting profits in the meat and poultry industry. Based on current commodity futures markets, Pilgrim’s said the total costs for corn and soybean meal to feed its flocks in fiscal 2008 would be more than $1.3 billion higher than what they were two years ago.

“Our company and industry are struggling to cope with unprecedented increases in feed-ingredient costs this year due largely to the U.S. government’s ill-advised policy of providing generous federal subsidies to corn-based ethanol blenders,” said Pilgrim’s chief executive Clint Rivers. “The cost burden is already enormous, and it’s growing even larger.”

The announcement from Pilgrim’s is a clear positive for the chicken industry afflicted by excess protein and soaring feed costs, analysts say. “We would assume other companies may also follow,” said JPMorgan analyst Pablo Zuanic. “So more than thinking in terms of absolute (how big are the cuts), we see today’s news as an inflection point.” Zuanic said he expects combined cutbacks of about 3% by the industry by the summer. And based on last year’s reaction in chicken prices following production cutbacks announced by Tyson Foods and Pilgrim’s, Zuanic estimates average revenue per pound for the industry could increase by about 12-15 cents from current levels.

The whole chicken producing sector got a boost Wednesday. Shares of Pilgrim’s Pride rose as much as 6.3% in intraday trading, rival Sanderson Farms Inc. rallied 14%, while Tyson Foods Inc. gained 4.3%. Merrill Lynch’s Diane Geissler sees the announcement from Pilgrim’s as a “clever” way to announce a production cut. “By not quantifying how much production will be removed from its system, Pilgrim’s Pride can keep its competitors (mainly the small, fragmented players) guessing as to production levels.”

And for Credit Suisse analyst Robert Moskow, the announcement is “a political statement more than anything.” It puts job losses “on the shoulders of misguided public policy on biofuels expansion,” Moskow wrote. But will additional job losses persuade legislators to reverse course on ethanol subsidies or the 15 billion gallon ethanol goal by 2012 that passed into law?

“It will be hard,” he said.