Meat Producers Hit On Flooding Concerns

U.S. meat producers’ pain worsened Monday, as their shares were hurt by fears about how persistent flooding is affecting crops they rely on for feed.

Millions of farm acres in the U.S. are set to go unplanted with corn or soybeans, The Wall Street Journal has reported. The shortage threatens to increase costs for meat producers such as Tyson Foods Inc., Sanderson Farms Inc. and Pilgrim’s Pride Corp. as they rely on those crops to feed the chickens used for their products.

“Protein stocks are typically a gut trade during the planting season,” said Jeremy Scott, research analyst at Mizuho Securities who covers these companies.

Feed Fears
Shares of meat producers have taken a hit recently as flooding has pushed up corn and soybean costs.

Tyson Foods fell 4.1%, Sanderson Farms lost 7.4% and Pilgrim’s Pride declined 3.8%. Tyson shares are down 4.8% in the past month, while Sanderson Farms and Pilgrim’s Pride are off more than 11%.

Mr. Scott said the weakness comes after indications over the weekend that farmers are leaving more acreage unplanted than some investors had anticipated. A U.S. Department of Agriculture report released on Monday showed through June 16, fewer acres of corn and soybeans have been planted than at this time last year.

The likely shortage in planting has driven up corn and soybean futures. Corn futures are up 6.6% this month, while soybean futures are 3.8% higher, according to Dow Jones Market Data. The higher costs could impact meat producers’ bottom lines.

Despite concerns about the impact of flooding on key crops, all three big meat producers are up more than 30% this year.

Tyson reported sales in its fiscal second quarter rose 7%, saying its beef business gained. Sanderson Farms also posted a rise in second-quarter revenue last month. Pilgrim’s Pride’s profit dropped sharply in the second quarter, hurt by lower chicken prices in the U.S.

Source: Corrie Driebusch, The Wall Street Journal

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