Dealmaking Surge Shrinks Ranks of Poultry-Only U.S. Meatpackers
Bloomberg
Published Aug 13, 2021 20:10
(Bloomberg) -- Investors looking for a ways to profit from the surging American chicken industry will soon have fewer options.
Deals announced this week for Pilgrim’s Pride Corp. and Sanderson Farms (NASDAQ:SAFM) Inc., respectively the second- and third-biggest U.S. poultry producers, would result in each being rolled into a bigger company.
The moves would absorb the last “pure play” U.S. chicken producers and come as the poultry market has been boosted by soaring sales of the meat at grocery stores and chicken sandwiches at restaurants. The acquisitions may also mean less transparency in the poultry market that has been beset by price-fixing allegations, a lack of labor and grueling working conditions inside meat plants.
There’s no chicken futures contract like there are markets in Chicago for cattle and hogs, so investors wanting to bet on chicken traditionally could turn to shares for Pilgrim’s Pride and Sanderson Farms. Each company had dedicated quarterly earnings calls where executives as of late discussed how severe winter weather killed birds and how chicken-genetics issues were slowing the rate of egg hatching.
Pilgrim’s shares jumped as much as 22% Friday, on pace for the biggest gains in eight years, after JBS SA (OTC:JBSAY) said it planned to acquire all outstanding shares it didn’t already own. The deal follows the announcement earlier this week that Cargill Inc. and Continental Grain Co. were buying Sanderson Farms for $4.53 billion and taking it private.
JBS, the world’s biggest meat company, now will look more like Tyson Foods Inc (NYSE:TSN)., the top poultry producer and biggest meat company by sales in the U.S. Having segments for beef, pork and poultry mean companies such as Tyson are better able to smooth out results when one meat is struggling, but also that each protein category gets less time in the limelight on quarterly calls.
Sanderson Farms, in particular, was known for transparency, according to JPMorgan (NYSE:JPM) & Chase Co. analyst Ken Goldman.
“There was no sugar-coating from this management team, no half-invented responses when full ones were unavailable, and certainly no buzzwords,” Goldman said in a note earlier this week.
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That insight now may be reserved not for retail investors but Cargill, the largest private company in the U.S. that had its best earnings in its 156-year history during its latest fiscal year.
Meanwhile, the mergers may add to the concerns of farmers groups and lawmakers including U.S. Senator Chuck Grassley, Republican of Iowa, who have said such deals should be scrutinized with much of the meat industry already held by a small group of big companies.
“This is yet another example of consolidation in a market that is already dominated by just a handful of firms,” Rob Larew, head of the National Farmers Union, said in an email, referring to the Sanderson Farms deal.
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Written By: Bloomberg
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