Fitch: H1N1 (Swine Flu) - A Reminder That Trade Bans Negatively Affect Cash Flow & Credit Profiles

CHICAGO--(BUSINESS WIRE)--Jun 15, 2009 - Increased incidence of animal viruses and diseases, such as H1N1, will continue to result in temporary sporadic trade bans on U.S. proteins, according to a new report issued by Fitch Ratings today. Export markets are a significant source of cash flow for U.S. protein processors; therefore, the negative affects of these restrictions could significantly impair credit profiles in the industry.

According to the report, a decline in international demand for U.S. proteins can cause a back-up in inventory and a significant reduction in pricing. "Unless production levels decline to accommodate reduced demand, a substantial decline in protein prices is likely to occur," said Carla Norfleet Taylor, Director at Fitch Ratings. "Initial consumer reaction to the April 2009 outbreak of H1N1 was markedly negative and several countries continue to ban pork products from U.S. states with confirmed cases of the virus."

Firms with ample financial flexibility, such as Cargill Inc. (IDR 'A/F1'; Stable Rating Outlook); significant product and client diversification, such as Tyson Foods, Inc. (IDR 'BB'; Stable Outlook); and numerous foreign production facilities, such as JBS S.A. (IDR 'B+'; Stable Outlook), are best positioned to withstand the volatility caused by ever-changing foreign import policies. Those most vulnerable include single product firms such as National Beef Packing Company, and those operating in financial distress, such as Pilgrim's Pride Corporation. Fitch's current ratings incorporate near-term volatility and the lack of predictability associated with animal diseases and trade restrictions.

"The last six years have been especially volatile for protein companies due to more stringent import requirements and a difficult cost environment," added Wesley E. Moultrie II, Senior Director at Fitch Ratings. "Given that credit profiles of Tyson and Pilgrim's were negatively affected in 2006 following rising worldwide fears regarding the bird flu and a subsequent oversupply of U.S. chicken, we are constantly assessing the impact of H1N1 virus on pork prices, exports and U.S. supply and demand."

The full report 'U.S. Protein Industry: H1N1 'Swine Flu' - A Reminder That Trade Restrictions Negatively Affect Cash Flow & Credit Profiles' is available on the Fitch Ratings web site at www.fitchratings.com.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

Contact: Fitch Ratings
Carla Norfleet Taylor, +1-312-368-3195 (Chicago)
Wesley E. Moultrie II, CPA, +1-312-368-3186 (Chicago)
Cindy Stoller, +1-212-908-0526 (Media Relations, New York)
cindy.stoller@fitchratings.com

Posted: June 2009

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