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Avian Influenza Outbreak Impacted the Meat Industry in 2015

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Outbreak of avian influenza

The avian influenza outbreak caused disruptions for most meat producers in 2015. It resulted in supply chain problems and meat-related bans. Hormel Foods (HRL) suffered from the outbreak. The avian influenza virus hit Hormel Foods’ farms in Wisconsin and Minnesota midway through 2015. This caused a decline in the operating profit of 2% for the Jennie-O Turkey Store segment in the most recent quarter. This segment is still recovering.

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For Pilgrim’s Pride (PPC), the biggest problem last year was also the avian flu outbreak. It caused supply chain problems in 2016. The company still expects that this issue and other global economic factors could pose a slight challenge to the export market in 2016. As a result, the company remains alert to any new cases of the virus. It kept all of its production complexes on a high biosecurity alert. Strong biosecurity measures help prevent, control, and manage the biological risk associated with the avian influenza virus. The company expects corn and soybeans to remain in abundant supply because of the positive harvest seasons in South America. Pilgrim’s Pride thinks that input costs, primarily feed, will be a factor for margin expansion in 2016.

Sanderson Farms (SAFM) also continues to face headwinds in the export market even though most avian influenza-related bans on US poultry products have been lifted. The revenue declined for meat producers in the last two quarters of fiscal 2015. For fiscal 2015, the revenue fell for Pilgrim’s Pride and Hormel Foods. Analysts expect the revenue to fall more for Tyson Foods and Sanderson Farms through fiscal 2016.

The PowerShares DWA Consumer Staples Momentum Portfolio (PSL) and the Guggenheim S&P Equal Weight Consumer Staples ETF (RHS) invest 3.6% and 2.7% in Tyson Foods. Hormel accounts for 6.4% of these ETFs.

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