China 'poised to reopen' to US chicken imports - Pilgrim's Pride

28.10.2016

China, facing a squeeze on domestic chicken meat production, may be poised to ditch its ban on imports from the US, Pilgrim's Pride said, offering some fillip to investors as it unveiled worse-than-expected results.

Bill Lovette, the Pilgrim's Pride chief executive, said that it had heard talk of China's potential removal of the curbs, which were introduced nearly two years ago in the wake of an avian flu outbreak in the US.

"We don't currently have an idea in terms of timing," Mr Lovette said.

"If that happens, we see that as supported, primarily for wing markets, wingtips, specifically, and chicken feet," he said.

'Historically low supply'

The ban on US poultry imports on fears of avian flu particularly hits demand for chicken feet and wingtips, which are popular delicacies in China, but have little or no market elsewhere.

China is the world;s second-biggest broiler meat consumer, after the US.

However, the restrictions have sapped broader broiler meat supplies too, not just thanks to the curb on meat imports, but buy-ins of foreign breeding stocks.

While China has been able to make up some of the lost breeding stock imports from New Zealand and Spain, with Dutch, French and UK bird supplies barred, it has been unable to fill all its needs, meaning a squeeze which is now coming home to roost.

Rabobank last month, flagging the potential for a reopening of imports, said that "historically low Chinese [poultry meat] supply is finally happening, after sharp reductions in breeding stock imports".

The bank forecast a 4% drop in Chinese poultry output this year, and 10% in 2017, "leading to an increase in local prices".

Chicken demand up

US-based Pilgrim's Pride said that, in the domestic market, chicken sales would remain strong,  despite concerns that greater availability of other proteins will threaten demand for chicken.

"Our outlook for chicken demand 2017 remains very solid, as we believe the increase in total US production across all protein complexes will be met with greater export demand," said Mr Lovette.

 "Strong US economic conditions, specifically very low jobless claims rates and higher disposable incomes will drive many households to not only seek better and higher-priced cuts of meat but also more consumption," he added.

Moreover, Pilgrim's Pride sees the environment for feed into next year as favourable, particularly in corn.

"Feed costs will remain well contained and not represent a significant barrier to margins

Net income falls

Pilgrim's Pride, which is controlled by Braziian meant giant JBS, reported earnings for the three months to September 25 down 28% at $98.7m, equivalent to $0.39 per share, falling short of Wall Street expectations of a $0.48-per-share result.

Net sales were down to $2.03bn, compared to $2.11bn for the same period in 2015.

However, Pilgrim's Pride shares recovered from early losses to stand up 1.8% at $21.04 in late deals on the Nasdaq exchange.


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