Source:  MEATINGPLACE.COM, 1/22/10

Rising chicken prices prompted another brokerage firm to upgrade shares of Tyson Foods to "buy" on Friday, but analysts cautioned the U.S.-Russia trade spat could weigh on pricing if it drags on.

Chicken prices are trending 10 percent to 15 percent above last year due to much stronger wing pricing and improved leg quarter pricing, said BB&T Capital Markets analyst Heather Jones, who upgraded Tyson to "buy" from "hold." Jones also raised her first-quarter earnings estimate for Sanderson Farms based on better pricing.

Boneless, skinless chicken breast prices are very strong, up 7 percent since the start of the year, said Jones. Lower feed costs and better beef and pork packing margins contribute to the bullish outlook for Tyson, she noted in a report to clients.

Further, the industry in 2009 remained committed to cutting supply from peak 2007-2008 levels, while robust retail demand is countering sluggish-but-stable foodservice demand, Jones wrote.

Improving chicken industry fundamentals caused Credit Suisse to boost its stock recommendation on Tyson to "outperform" from "neutral" last week and BMO Capital Markets to raise its earnings outlook and stock price target on Sanderson Farms.

Russian impact looms

However, the Russian ban on chorine-treated poultry, which creates an effective embargo on U.S. poultry, is cause for concern, analysts said.

Chicken leg prices are holding up well but could drift lower the longer the impasse between Russia and the United States continues, the CME Group Daily Livestock Report warned on Thursday.

Reuters reported on Thursday that both sides in the trade dispute said progress was made in two days of talks and that negotiations would continue. However, no date had been set for talks to resume, and Russian importers were seeking other suppliers. Lack of a deal pressured hog futures in Chicago on concern increased U.S. chicken supplies would compete with pork.

Leg quarter prices are holding up because overall supplies are not excessive, and demand from surrounding countries should help offset the Russian ban, according to the DLR, which noted Russia buys about 24 percent of all U.S. chicken exports.

"It is hard to conceive that the current ban will stay in place for a long time. For the moment, it will likely help Russian traders clean up some of their old stocks and then gear up for a new round of buying," the report said.

National Chicken Council spokesman Richard Lobb told Meatingplace the talks with Russia are still in the early stages, and the longer-term impact on chicken pricing is unclear.
"We've had cutoffs in Russia before, and what happens generally is it gets sold in the domestic market for whatever it will fetch," he added.

Jones said she does not expect a protracted disruption, but noted Russia's posturing seems more aggressive than usual. "Should supplies begin to back up in the United States, that could pressure leg quarter pricing, which has been remarkably resilient thus far," she added.

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