The U.S. meat and poultry complex can expect more financial pressure as they work through supplies of high-priced feed and deal with soft demand for beef, chicken and pork amid a global recession.
Feed costs have retreated from last year's highs, and meat and poultry producers are cutting supplies. Both factors have raised optimism that U.S. beef, pork, and chicken producers will fare better by late 2009, credit analysts at the Reuters Food and Agriculture Summit said this week. Of course, pork supplies face seasonal increases during the fall, and this year will be no different. Next week's USDA Hogs & Pigs Report will shed more light on the outlook, but December's report suggested there will be plenty of pork come autumn.
U.S. meat supplies have felt the pinch of consumers trading down to more economical options and the export market has slowed, although January's numbers for pork and beef were surprising and supportive.
Market analysts are reflecting mixed opinions, which should come as no surprise in the tumultuous waters all market sectors are navigating today. For example Moody's Investor Services is more cautious about its outlook than some of its counterparts. "Until the supply side of the equation is normalized, we are going to continue to see stress in the poultry industry," says Brian Weddington, vice president and senior analyst at Moody's.
Moody's has negative ratings on both Tyson Foods and Smithfield Foods. Of course Tyson is the largest U.S. meat producer -- beef, pork, and chicken -- while Smithfield is the largest U.S. pork producer.
"In Moody-speak, that means that we think that within 12 to 18 months there is more of a chance than not that there will be a change in ratings downward," Weddington notes.
Specifically Weddington warns that the U.S. meat sector is still vulnerable to unexpected shocks that could disrupt demand, such as major recall or disease outbreak.