Fitch report: Tyson Foods well positioned for export problems

Fitch Ratings on Monday (June 15) issued a report saying Springdale-based Tyson Foods Inc. is one of a few large agri-based companies positioned to best withstand “volatility” caused by export bans resulting from the H1N1 (swine flu) outbreak and other health-related concerns.

A May 12 report from the Texas Tech Department of Agricultural and Applied Economics suggested the $16 billion in U.S. agri exports to Mexico during 2008 will be hurt by what has happened to the Mexican economy as a result of the swine flu outbreak in that country.

“The most obvious victim of this is the U.S. pork industry. Even though eating the meat doesn’t transmit H1N1, consumers have shied away from pork dishes, curbing what started as a promising year for the industry after Mexico imported $228 million in pork products from the U.S. in January and February — a 20 percent increase over the same period last year, according to estimates by the USDA’s Economic Research Service,” noted the Texas Tech statement.

Pork is one of the better performing segments of Tyson Foods, with $1.722 billion in sales the first six months of the company’s fiscal year, up 3% over the same period in 2008. Tyson Foods’ employs thousands in the Fort Smith area as part of the company’s chicken segment.

“The impact on the food distributions sector has been disastrous, particularly for the suppliers of high-value food products demanded by resorts and restaurants which purchase high quality products imported from the U.S.,” according to the Texas Tech research report.

Carla Norfleet Taylor, director of Fitch Ratings, said Cargill, Tyson Foods and Brazil-based JBS “are best positioned to withstand the volatility caused by ever-changing foreign import policies.”

The Fitch report made the following points:
• “Increased incidence of animal viruses and diseases, such as H1N1, will continue to result in temporary sporadic trade bans on U.S. proteins.”

• “Export markets are a significant source of cash flow for U.S. protein processors; therefore, the negative affects of these restrictions could significantly impair credit profiles in the industry.”

• A decline in international demand for U.S. proteins can cause a back-up in inventory and a significant reduction in pricing. “Unless production levels decline to accommodate reduced demand, a substantial decline in protein prices is likely to occur,” Taylor said in the report. “Initial consumer reaction to the April 2009 outbreak of H1N1 was markedly negative and several countries continue to ban pork products from U.S. states with confirmed cases of the virus.”

• Those most vulnerable include single product firms such as National Beef Packing Company, and those operating in financial distress, such as Pilgrim’s Pride Corporation.

• “The last six years have been especially volatile for protein companies due to more stringent import requirements and a difficult cost environment,” Wesley E. Moultrie II, senior director at Fitch Ratings, noted in the Fitch statement. “Given that credit profiles of Tyson and Pilgrim’s were negatively affected in 2006 following rising worldwide fears regarding the bird flu and a subsequent oversupply of U.S. chicken, we are constantly assessing the impact of H1N1 virus on pork prices, exports and U.S. supply and demand.”