US meat sector to suffer ongoing financial troubles

US meat companies can expect a few more months of financial pressure due to supplies of costly feed and weak demand for meat, credit analysts said Tuesday (Mar 17).

US meat companies have struggled throughout 2008 and in early 2009 because of high feed prices and slowing meat sales. To reduce losses, production was cut, especially the poultry producers as there is a huge chicken supply in the market.

Until the supply-demand equation becomes balanced, there will be continued stress in the poultry sector, said Brian Weddington, vice president and senior analyst at Moody's Investor Services.

Moody's gave negative ratings to both Tyson Foods and Smithfield Foods, two of the largest meat producers in the US, meaning it is more likely to have a change in ratings downward within 12-18 months, Weddington said.

Fitch has stable ratings on the two companies, implying that ratings will not change over the next year.

Tyson and Smithfield will feel pressure for the next quarter or two, but will enter a period of stability after that, said Wesley Moultrie, senior director in corporate finance at Fitch Ratings.

Weddington said meat companies are vulnerable to unexpected shocks that could disrupt demand, such as an animal disease outbreak that could shut down meat exports.

Feed costs and meat production have been decreased, raising hopes that US meat companies will fare better by late 2009. Moultrie said the second half of 2009 is likely to be better than the first half.