CHICAGO--(BUSINESS WIRE)--Today, Fitch Ratings has published a quarterly update on U.S. Protein industry fundamentals. According to the report, the outlook for the beef and pork segments of the U.S. proteins industry remains favorable as strong exports and tight global supply are driving pricing and profitability.
In contrast, the U.S. chicken industry has been generating losses since the end of 2010 due to excess supply, weak pricing and elevated feed costs. "High grain costs will continue to cause margin pressure in the near-term, but recent pullbacks in production could signal capitulation for the chicken producers," said Carla Norfleet Taylor, Director at Fitch Ratings. "The industry should experience a modest increase in chicken prices towards the end of 2011."
The report also includes Fitch Ratings' assessment of the U.S. Department of Agriculture's (USDA) latest forecasts, released July 12, 2011, along with a synopsis of industry data used to gauge the health of the U.S. protein industry. Feed-price ratios, egg placements, hog farrowing, cattle on feed and exports are some of the indicators that provide insight on trends surrounding production, supply, and global demand. While feed costs affect producer profitability, Fitch believes other factors, such as robust pricing, strong exports, and relatively inelastic domestic demand, are currently playing just as large a role.
Fitch rates through the protein cycle for its universe of rated companies due to periodic supply/demand imbalances which cause volatility in the industry's operating earnings and cash flow. Key rating drivers include each firm's financial policies and Fitch's view regarding the company's ability to manage through risks inherent in the business. Expectations regarding debt levels and the maintenance of adequate liquidity have been factored into the ratings.
Companies covered by this report and their respective issuer default ratings (IDR) include:
--Tyson Foods, Inc.: 'BBB-'; Outlook Stable;
--Smithfield Foods, Inc. 'B+'; Outlook Positive; and
--JBS S.A.: 'BB-': Outlook Stable.
The full report '2Q11 U.S. Protein Update: Pricing Drives Meat Industry Profitability - Chicken In the Red, but Light Is at the End of the Tunnel' is available at 'www.fitchratings.com.'
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research: 2Q11 U.S. Protein Update: Pricing Drives Meat Industry Profitability (Chicken In the Red, but Light Is at the End of the Tunnel)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=642329
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