February 24, 2010

High production may stab US poultry sector in the back

The risk of US poultry producers ramping up production too far this year is recreating some of the conditions that drove Pilgrim's Pride into bankruptcy.

Expectations that the global recovery will boost meat demand could cause irrational behaviour among chicken and pork producers, driving down prices, according to ratings agency Fitch.

Poultry groups faced threats both from bans on US broiler meat and a potential reversal of the substitution of chicken for more expensive meats encouraged by the recession.

The risk of poultry overproduction will be a big concern for the meat industry in 2010, and a reigniting of the race for market share could offset benefits from improved global demand, said Fitch.

There is also a revival of growth in the number of eggs placed for hatching in the US, after declines of 3-10% for the first quarter of 2009. Recent production trends indicate that the chicken industry has become more optimistic regarding demand levels for 2010, Fitch said.

The agency also highlighted the ambitions for increased market share as shown by Pilgrim's Pride three weeks ago. Fitch senior director Wesley Moultrie said continued poultry earnings improvement for Tyson and a recovery for Pilgrim's Pride will rest upon industry maintaining rationale pricing. The historical quest for market share gains at any cost has been disastrous for poultry prices, Moultrie added.

Russia's ban on US poultry imports, and delays to a resolution would negatively affect US chicken prices. Russia is one of the US' largest poultry export market, accounting for 26% of shipments. Meanwhile, China, which with Taiwan accounts for about 12% of US broiler exports, has unveiled duties of up to 105% on imports of American poultry as part of an anti-dumping drive.