Tyson Foods (NYSE:TSN)
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3 Months : From Oct 2019 to Jan 2020
By Kirk Maltais and Ryan Dezember
Share prices of chicken producers have taken flight following China's lifting of a four-year old ban on importing poultry from the U.S.
The gains came after Chinese officials said over the weekend that they and U.S. counterparts reached a deal in which the U.S. would allow imports of Chinese cooked chicken and seafood products in exchange for China scrapping the ban on U.S. poultry shipments. The pact, reached amid the broader trade dispute between the countries, caused poultry stocks to pop.
The ban was instituted in 2015 in response to outbreaks of avian influenza in the U.S. Lately, however, China has struggled with an outbreak of African swine fever that has cost the country roughly 40% of its hog herd and initiated a scramble for alternative proteins.
Sanderson Farms Inc. shares got the biggest boost, jumping nearly 16% on Monday, headed toward the stock's biggest one-day move in more than a decade. Shares of rivals Pilgrim's Pride Corp. and Tyson Foods Inc. rose 4.6% and 8.3%, respectively. Those three companies accounted for nearly half of the ready-to-cook chicken produced in the U.S. last year, according to Sanderson.
Prices for chicken in the U.S. have yet to jump like the shares of producers have, but they are expected to rise alongside shipments to China.
"It can and likely will move U.S. poultry prices higher," said Dennis Smith, a commodities broker with Archer Financial Services Inc. "Seeing China drop this ban...simply confirms that they need protein."
Domestic prices for whole broilers -- younger chickens weighing 2.5 to 4.5 pounds -- fell last week to 78.31 cents a pound, down 8.2% from the same time last year, according to U.S. Agriculture Department data. Ample domestic supplies have dragged down prices, but demand for dark-meat chicken on the export market is expected to move faster thanks to "increased export interest," the USDA said Tuesday.
The Chinese National Bureau of Statistics said earlier this month that prices for Chinese pork had risen 69% from a year earlier due to the African swine fever epidemic. The USDA projects that China's swine herd will fall to 275 million pigs, from 428 million pigs in 2018.
Simon Powell, an analyst with Jefferies Financial Group Inc., said this week that it is unclear if there is enough spare production capacity to replace the estimated 20 million metric tons of meat, equal to about 6% of total annual global supply, that has been lost as a result.
"There is limited spare capacity to help fill the hole in China," Mr. Powell wrote in a note to clients. "Asian consumers want pork and, in its absence, may simply pay the higher price and consume less, but at the same time there will be some shift to other protein."
China imported 342,000 metric tons of chicken in 2018, and is expected to more than double its annual intake to 750,000 tons in 2020, according to the USDA.
The opportunity to fill China's pork gap with chicken has U.S. poultry executives salivating.
"Whether the United States is a direct supplier to China or whether they source from other countries to the extent that they can...that creates backfill opportunities for us," Tyson Chief Executive Noel White told investors at an industry conference last month. "Any time that there is that amount of protein that is lost from a global perspective, there is going to be an impact on price."
Write to Kirk Maltais at Kirk.Maltais@wsj.com and Ryan Dezember at firstname.lastname@example.org
(END) Dow Jones Newswires
October 30, 2019 15:20 ET (19:20 GMT)
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