Chicken Company Stocks on the Rebound

US - Poultry company stocks rose substantially yesterday, reflecting gains across the US stock markets generally.
calendar icon 24 March 2009
clock icon 4 minute read

Shares of poultry processors rallied on 23 March on the coattails of a stronger overall market, reports Morning News covering northwest Arkansas. Shareholders of Tyson Foods Inc. and Sanderson Farms Inc. recovered about 7 per cent of the value lost during the previous week following lacklustre news of trade sanctions, disease outbreak and competitive issues with rival Pilgrim's Pride Corp.

Shares of Tyson Foods closed at $9.80, up 68 cents, while Sanderson Farms' stock traded up $1.87 to close at $34.27. Shares of bankrupt Pilgrim's Pride closed at $2.30, up 15 cents.

The stock prices recently came under pressure as Russia banned poultry imports from three US plants. Tyson Foods, Sanderson Farms and Peco Foods each had one plant on the suspension list, the US Department of Agriculture reports.

Both Tyson and Sanderson said they did not know why they had plants singled out but in the meantime, both companies can fill orders from their other plants approved for export to Russia.

Analysts do not believe this recent suspension will be a negative for the industry as Tyson has 18 other plants from which it can ship chicken; Sanderson Farms has two.

Russian demand for US product has been fairly healthy considering the credit constraints, economic weakness and currency issues, said Farha Aslam, analyst with Stephens Inc. Stephens Inc. provides investment banking services for both Tyson and Sanderson is compensated accordingly.

In January, US chicken exports to Russia were up 20 per cent from a year earlier but the 2009 sales volume to Russia is expected to be down following a reduced import quota, according to the USDA.

Also last week, Sanderson Farms reported that 1.4 million chickens at the company's facility at Bryan, Texas, were infected with a respiratory virus resulting in a loss of about 400,000 birds.

The virus known as infectious laryngotracheitis is not dangerous to humans, said Frank Jones, poultry expert with the University of Arkansas. He said many times birds are vaccinated for the highly contagious disease but if a bird becomes sick the entire flock could be at risk in a very short period of time. The losses from an outbreak can be substantial depending on the age of the chickens when they become sick and how much feed the sick birds have already consumed, Dr Jones said.

Stephens Inc. estimates the virus could reduce Sanderson Farms' earnings per share in the current quarter by up to 5 cents.

Lastly, Pilgrim's Pride announced Friday the sale of its Farmerville, Louisiana, plant to Foster Farms and the state of Louisiana for $80 million. The plant is one of three that Pilgrim's planned to close, including one in El Dorado.

Mr Aslam said the sale of the plant is a negative for the industry that needs to cut more production to sustain profitability.

Poultry companies are cautious while closely watching production as processing margins average 5 cents per pound last week, compared to losses all of last year, according to Mr Aslam. Breast meat prices are $1.45 per pound and are expected to remain flat going into Easter. Mr Aslam also predicts that prices will rally to $1.55 per pound by mid-summer, concludes the Morning News report.

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