Poultrygeddon may be coming for the chicken production industry.
A new report from S&P warns of a feed crisis that threatens to put chicken producers’ credit ratings in the fryer.
“Of the three primary meat industries, we believe chicken producers will most feel the effect of a one- or a two-year drought,” writes S&P’s David Wood. “Chicken production is the most susceptible to feed costs (the majority of which are for corn and soy-based meals). Moreover, the industry has a history of overproduction, which has made it difficult to raise prices to offset higher feed costs.”
Pork and beef, meanwhile, are not even in the top-5 industries most at risk of drought, Wood writes.
Should it drag on, the drought would have at most a “medium” impact on speculative-grade livestock producers, whereas speculative poultry firms’ ratings would be at “high” risk.
“We believe a one-year drought would have a low to medium impact on chicken producers’ credit quality, and a two-year drought could have a high impact on speculative-grade producers’ creditworthiness. We have already revised the ‘B’ rating outlook on Pilgrim’s Pride Corp. to negative from developing.”
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