Source: Meatingplace.com, March 25

Accelerating export demand for pork and beef will bolster profit margins at Tyson Foods and Smithfield Foods, said a Wall Street analyst who upgraded both stocks to “buy” on Thursday.

The earthquake in Japan and subsequent radiation contamination fears should fuel more demand for red meat imports, supported by yen appreciation, BB&T Capital Markets analyst Heather Jones told clients in reports explaining the upgrades. In addition to the disruption in livestock production in Japan, cold storage inventories were compromised due to power loss.

“The magnitude of these factors is unclear, but some meaningful lift in demand in that market seems assured,” Jones wrote.

China, the world’s largest pork producer with a market hog inventory five times the size of the U.S. herd, is facing disease outbreaks and a feed additive contamination problem at the country’s largest processor. “If indeed current disease running through China’s herd is materially worse than the country is letting onto, this could have significant implications for U.S. exporters,” she said.

Tyson and Smithfield’s pork and beef margins are also benefiting from productivity initiatives and stable domestic demand, she said. On the chicken side of Tyson’s business, industry production cuts are likely by summer, she added.

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