Fitch: H1N1 (Swine Flu) – A Reminder That Trade Bans Negatively Affect Cash Flow & Credit Profiles
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June 15, 2009 by fluoutbreak
Market Watch
CHICAGO, Jun 15, 2009 (BUSINESS WIRE) — 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.
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