Fitch has cited as a "big concern" the risk of poultry producers ramping up production too far this year, and recreating some of the conditions which drove US giant Pilgrim's Pride into bankruptcy.
Expectations that the global recovery will boost demand for meat could cause "irrational behaviour" among producers of both chicken and pork, driving down prices, the ratings agency said.
However, poultry groups faced particular threats both from bans on US broiler meat and a potential reversal of the substitution of chicken for more expensive meats encouraged by the recession.
"The risk of chicken overproduction… will be a big concern for the protein industry in 2010," Fitch said.
"A reigniting of the race for market share could offset benefits from improved global demand."
'Disastrous quest'
The agency highlighted a revival in growth in the number of eggs being placed for hatching in the US, after declines of 3-10% in weekly data for the first three months of last year.
"Recent production trends indicate that the chicken industry has become more optimistic regarding demand levels for 2010," Fitch said.
It also highlighted the ambitions for increased market share voiced three weeks ago by Pilgrim's Pride, which was bought out of bankruptcy by Brazil's JBS.
Fitch senior director Wesley Moultrie added: "Continued poultry earnings improvement for Tyson and a recovery for Pilgrim's Pride will rest upon industry maintaining rationale pricing.
"The historical quest for market share gains at any cost has been disastrous for poultry prices."
Trade curbs
Indeed, Russia's ban on US poultry imports, over objections about the use of chlorine in cleaning carcasses, posed a threat in particular to prices of dark meat.
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Fitch credit ratings for major meat companies (rating outlook)
Del Monte Foods: BB, (positive)
Dole Food: B, (stable)
JBS: B+, (positive watch)
Smithfield Foods: B-, (stable)
Tyson: BB, (stable) |
"These standards have effectively shut down chicken exports to Russia. Fitch views this development as negative and believes delays regarding a resolution could negatively affect US chicken prices."
Russia has historically been US poultry group's biggest export market, with a 26% share of shipments.
Meanwhile, China, which with Taiwan accounts for about 12% of US broiler exports, has unveiled duties of up to 105% on imports of American poultry as part of an anti-dumping drive.
State support
Nonetheless, Fitch said that it expected credit profiles for the meat sector to be support during the year by factors including better earnings and healthy cashflow.
Del Monte Foods had put itself on course for an upgrade by reducing leverage targets, with JBS too potentially to have its rating improved despite last year's purchases of Brazilian rival Bertin and Pilgrims Pride.
Fitch said: "Both transactions are expected to be entirely funded with $2bn equity contribution by the Brazilian government through BNDES," Brazil's development bank.
The ratings agency was "not concerned about the company's ability to roll or repay" its $1.5bn of, in the main, short-term debt.
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