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040203 Poultry Flu Cases Hit Companies, Feed Prices

February 14, 2004

Chicago - The shares of major U.S. poultry companies fell as did the prices of key feed ingredients on concerns a poultry flu found in two more states may cause a lengthy halt to chicken exports.

Several countries banned U.S. chicken after the bird flu virus, which is not harmful to humans, was found on two Delaware farms since the weekend. On Thursday, cases were also found in a New Jersey live poultry market and in a Pennsylvania flock raising concerns these countries will be slow in lifting those bans.

"There are legitimate fears that there will be excess protein if too many export markets close up for too long a time," said Eric Katzman, food industry analyst with Deutsche Bank Securities.

The United States exports about 15% of its chicken production. Without exports, the meat could pile up here pressuring prices for all meat.

On Thursday, the flu was found in four live poultry markets in New Jersey towns near New York City and in a flock in Lancaster County, Pennsylvania.

In Delaware, 84,000 chickens have been slaughtered since Saturday after the virus was found on two farms.

The flu is the H7N2 strain and has occurred in the United States before. Industry experts said this year's outbreak has made headlines largely because it occurred while Asia is combating an outbreak of a much more deadly poultry flu.

The Asian flu is the H5N1 strain and has killed 19 people there and decimated poultry flocks in 10 Asian countries.

"I don't think this would really be news if we didn't have the Asia influenza," said Mike Lacy, a poultry scientist at the University of Georgia. "We had it in California last year and in North Carolina and it didn't even make the papers."

On Thursday, Credit Suisse First Boston downgraded its ratings of Tyson Foods Inc. and Pilgrim's Pride Corp. to underperform from neutral after the poultry flu was found in New Jersey. Tyson Foods is the nation's top chicken producer and Pilgrim's Pride in No. 2.

"Finding additional cases increase the risk that export markets that are currently closed (China, Japan) will stay closed longer and that importers, such as Russia, may now expand its ban from just Delaware to nationwide," David Nelson, Credit Suisse food analyst, said in a research report.

Tyson's shares closed Thursday at $16.53, down 42 cents per share, or 2.48%, at the New York Stock Exchange and Pilgrim's Pride closed at $20.77, down 38 cents, or 2.48%.

Sanderson Farms Inc., the nation's sixth largest poultry producer, closed at $54.46, down $3.83 or 6.57%, in over the counter trading.

Corn, soybean and soymeal prices were lower at the Chicago Board of Trade on Thursday largely on profit taking after recent gains, but traders are concerned lengthy export bans on poultry could reduce poultry production and lessen demand for feed.

"It is a concern, which has limited our upside potential," Shawn McCambridge, senior grain analyst at Prudential Financial, said of the flu's impact on grain prices. "If we come back next week and if we find a few more cases, then I think you will start see more of an impact on prices."

CBOT corn for March delivery fell 3 cents to $2.81-1/4 per bushel, May soybeans were down 15-1/2 cents at $8.23 per bushel and May soymeal was down $5.00 at $243.00 per ton.

Source: Reuters News Service


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