May 5, 2006

US investors optimistic about chicken companies despite huge losses

Confidence that US chicken companies would pull through the oversupply situation is at a high as investors poured money into these companies, prompting a rise in share prices, analysts said.

Although analysts are still skittish about meat companies like Tyson Foods Inc and Pilgrim's Pride Corp, the investing public has clearly voted with their money.

Shares of the top US chicken producers have had double-digit growths since early April. Shares of Tyson have grown 13 percent since April and only dipped slightly when the company announced a US$127 million loss for its second quarter.

Shares of number 2 US chicken producer Pilgrim's Pride have soared almost 30 percent from mid-April levels although it also reported a huge second quarter loss.

The company announced in a recent report that it would cut chicken production by 3 percent and that its chicken inventories have begun to decline.

Analysts cautioned that the cut in production was unlikely to have any effect on inventories until July. 

Pablo Zuanic, a food company analyst at JP Morgan, said the market reacted to the good news and ignored Pilgrim's Pride warnings about high production levels, potential price increases of feed costs and concerns about bird flu.

A small recovery in chicken prices recently may have sparked off the wave of investor enthusiasm, said Paul Aho, an economist with an industry consulting firm.

Breast meat wholesale price is now about US$1/lb, compared with about US$0.90  a few weeks ago while dark meat portions have doubled to US$0.20c/lb, up from a low of US$0.10, he said.