What happened
Shares of Sanderson Farms (SAFM) were moving up in the pecking order today after the poultry processor got a boost on news that China was expected to lift its ban on U.S. poultry imports as part of ongoing trade negotiations.
As a result, Sanderson Farms was trading up 13.7% as of 10:55 a.m. EDT Monday. Other poultry processors, including Pilgrim's Pride (PPC 0.61%) and Tyson Foods (TSN 1.10%), were up as well, gaining 5.7% and 3.3%, respectively. Since Sanderson is the smallest of the bunch, it seems to have the most to gain from the news.
Image source: Getty Images.
So what
On Saturday, Reuters reported that China and the U.S. had said that a new trade agreement would include a lifting of China's ban on U.S. poultry imports in exchange for the U.S. allowing imports of cooked Chinese chicken and catfish products.
China had originally banned U.S. poultry products in January 2015 on fears of an avian flu epidemic, cutting off an approximately $300 million market for U.S. producers; China had imported a total of 240 million pounds of chicken products in the 11 months before the ban.
Now what
The opening of the Chinese market is just the latest piece of good news for Sanderson Farms and its fellow poultry producers as sector stocks have soared this year, largely due to the African swine fever outbreak that has forced the culling of pig populations and therefore elevated poultry prices since it's a substitute product. Hopes of a breakthrough with China had also helped propel poultry stocks.
Sanderson Farms shares are now up 55% year to date, and its two peers have also gained more than 50%, with Pilgrim's Pride up 90% year to date. Investors should keep an eye on this story as it's still developing; the stock could move again once the agreement is officially announced and chicken exports to China resume.
