U.S. Poultry Industry

Written By Brian Hicks

Posted July 11, 2009

It looks like we have an international game of "chicken" on our hands. . . and it could cost the U.S. poultry industry dearly.

If it’s not our "protectionist" views, the trillions we owe, or a weak dollar that’s got China squawking, it’s chicken.

That’s right. Even we couldn’t have predicted poultry would be at the center of a "boiling" controversy.

But this trade war isn’t a first.

China has been crying over "protectionism" for quite some time. Days ago, for example, the U.S. International Trade Commission recommended punitive duties of up to 55% on low-cost Chinese tire imports because they were "disrupting" the U.S. market. Days later, the House approved legislation that would curb greenhouse gas emissions with a provision that would impose tariffs on goods from countries not meeting U.S. standards.

And now, thanks to our latest spending bill, the USDA will no longer accept poultry products from China on the idea that Chinese chickens don’t meet our health and safety standards.

And it’s got the Chinese — who depend on exports — clucking mad.

As a result, China claims we’re making protectionist moves and unfairly targeting China’s imports. And it’s fighting back by banning American poultry imports, although China says this isn’t the case.

Though, if true, it’s to the chopping block for the American poultry industry, which is already suffering from lower demand, higher production costs, and an oversupply of chicken.

You see, China is a big market for U.S. chicken feet, which brought in $280 million in 2008. Without that market, most of the feet would have to be "processed into feed or other non-food uses," which brings in less money to the U.S.

Tyson Foods (TSN:NYSE), for one, could lose a substantial portion of the market over the next six months, considering China is a huge market for U.S. chicken.

And, if the ban continues beyond September 2009, earnings for companies like Tyson and others could get hit hard. It’s part of the reason why industry groups are asking Congress to amend the House appropriations bill to remove Section 723, which "limits Chinese chicken from entering the U.S."  Unfortunately, the most likely opportunity to make that change will be during the conference committees between the Senate and the House in September.

We’re looking to go short these and other companies shortly in Options Trading Pit.

Enjoy your weekend,

Ian L. Cooper
http://www.wealthdaily.com

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