The nation's chicken producers faced more bad news Thursday as Russia said that 19 U.S. poultry producers will be barred from exporting their products there, a move that would deprive them access to a key market.
Meat producers are already grappling with high costs for grain and fuel and an oversupply of meat that is keeping prices down. They're focusing on exports, which are seen as key to offsetting domestic weakness and they're benefiting because of the weak U.S. dollar.
Russia is an important market for many poultry producers, including the nation's largest chicken producer, Pilgrim's Pride Inc., as well as Sanderson Farms Inc. and Tyson Foods Inc., the world's largest meat company.
Shares of many meat producers, including top hog producer Smithfield Foods Inc., tumbled Thursday on worries about potential cuts by Russia to chicken and pork import quotas. On Wednesday, Russia's top agriculture official was quoted as saying import quotas could be cut by hundreds of thousands of tons, with that country's producers making up the shortfall.
On Thursday, Prime Minister Vladimir Putin, said 19 U.S. poultry producers will be barred from exporting their products to Russia. Putin, the country's former president, told CNN that the unidentified American producers had ignored warnings from Russian inspectors who examined poultry companies last year. He said the move had nothing to do with tension over the recent war in Georgia and was purely economic.
The U.S. industry's trade group that focuses on exports wasn't so sure.
"We try and keep our industry out of politics and into marketing opportunities, but sometimes it's very difficult to separate the two," said Jim Sumner, president of the U.S.A. Poultry & Egg Export Council.
He said it was too early to tell what all this means and noted there had as yet been no official government communication.
Sumner said if there were any deficiencies in the plants, they would be corrected in weeks or a few months, and the ban wouldn't hurt business too much.
But Russia makes up 33 percent of total U.S. chicken exports, making it the largest customer, BMO Capital Markets analyst Kenneth Zaslow wrote in a research note Thursday.
In the first half of the year, U.S. producers shipped $395.7 million worth of broilers to Russia. That was up 42 percent from the previous year, while volume grew 20 percent.
Sumner said U.S. producers have known that the Russian chicken producers have been increasing production by about 16 percent a year and they have been preparing for a cutback.
"We can't continue to increase exports while their product is increasing at that level," he said. "Something has got to give. They're our customers. We want the market but things change over time."
Shares in many meat companies slumped on worries about the situation. Chicken producer Sanderson Farms Inc.'s shares fell 88 cents, or 2.5 percent, to close at $34.36, while Tyson's shares dropped 36 cents, or 2.4 percent, to $14.99. Smithfield Foods, the top hog producer and pork processor, saw its shares lose 83 cents, or 3.8 percent, to close at $20.73.
Pilgrim's Pride shares rose 26 cents, or 2 percent, to close at $13.32. But its shares had taken the biggest dive in the sector on Wednesday, falling more than 11 percent on three times its normal trading volume.
Zaslow said in a note published before Putin's comments that he expected less poultry and pork to go to Russia in the next six months, but any cuts would likely be temporary.
"Russian protein industries are not developed enough to support the country's needs," he wrote.
With any cuts, he wrote, "chicken leg prices, and, to a lesser extent, pork prices, would be significantly pressured." A reduction in exports to Russia, he said, could create more incentive to trim production, which would boost meat prices higher.
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