October 29, 2019

Possible end to Chinese ban on US poultry imports pushes up shares of chicken processors

China's announced move to potentially end its ban on US poultry that has been in place since 2015 have pushed up the shares of US chicken processors, Bloomberg reported on October 28.

The move, which was prompted by the country's urgency to import more protein as an African swine fever outbreak continues to weaken Chinese meat supply, is set to benefit Tyson Foods Inc., Pilgrim's Pride Corp. and Sanderson Farms Inc.

Chicken is the most affordable substitute for pork, which is China's preferred protein.

"This could be a significant positive for the US chicken industry given China's historical prominence as a chicken import partner, and because of the country's current need for additional protein imports in the wake of African swine fever-driven supply challenges," analysts at Stephens Inc., including Ben Bienvenu, said in a note on October 28.

Sanderson Farms shares gained as much as 16%, the biggest intraday jump in more than a decade, while Pilgrim's Pride and Tyson rose as much as 8.3% and 5.1%, respectively.

China is now bringing in more chicken from Brazil, which competes with the United States for a share of the Chinese market, Sanderson Farms CEO Joe Sanderson said on October 18 during an investor presentation.

It is also not expected that US exports to China would spike significantly even after the ban ceases, according to Global AgriTrends president Brett Stuart. China may just displace exports to smaller markets, which would push up prices, especially for chicken leg quarters.

"To see that leg quarter price get another bump, that would go right to the bottom line of US producers," Stuart said, which would be "great news" for the industry.

Sanderson has "the most quantifiable benefit," according to the Stephens report, as it sold 74.9 million pounds (34,000 tonnes) of chicken for US$62.1 million to China in fiscal year 2014, before the ban.

- Bloomberg