Why the Chicken May Still Cross the Border, Nafta or No Nafta

November 9, 2017 08:54 AM

(Bloomberg) -- U.S. chicken will keep making its way to Mexico, even if there’s a shakeup in the North American Free Trade Agreement.

That’s the view of Bill Lovette, the chief executive officer of Pilgrim’s Pride Corp., the second-largest U.S. chicken processor. Both countries are interdependent when it comes to poultry, as Mexico is the largest market for U.S. exporters. At the same time, the Latin American country is “very aware of food inflation” and doesn’t want citizens to see runaway costs, he said in an interview.

“Mexico and the U.S. are so inextricably linked that I don’t believe there’s going to be a significant impact, especially for chicken,” Lovette said. “We’ll find a way to keep chicken going across the border.”

The comments come as thefifth round of Nafta negotiations looms between U.S., Mexican and Canadian officials. The talks in Mexico City are said to begin on Nov. 15. The U.S. has threatened to withdraw from the deal, and the last round of negotiations in Washington grew contentious as American officials made controversial demands on items including dairy and automotive content.

Agriculture Shipments

Agriculture groups have lobbied the White House to preserve the deal. Mexico is also among the largest foreign buyers of American pork, corn and wheat, and exports are vital to offset recent domestic surpluses. U.S. chicken sales to its southern neighbor have dropped this year, partly because of the strength of the dollar versus the peso, Lovette said. Through September, shipments fell 9.2 percent in 2017 from a year earlier, U.S. Department of Agriculture data show.

Pilgrim’s shares rose as much as 9.6 percent in New York on Wednesday, touching the highest since January 2015, after the company reported adjusted earnings per share for the third quarter that beat all analyst estimates compiled by Bloomberg. The company’s net-sales rose 37 percent in the quarter versus 2016.

The Greeley, Colorado-based processor has operations in Mexico, which may help to offset the impact of any trade-policy changes. The unit performed better than expected in the third quarter, and Mexico’s demand is expected to grow as consumers with rising incomes eat more protein, the company said Wednesday on an earnings call.

Lovette also said he doesn’t expect the U.S. to regain export access to China in the foreseeable future. The nation banned U.S. poultry shipments since early 2015 after a domestic outbreak of bird flu. President Donald Trump is visiting the Asian nation this week, and Chinese online mall JD.com Inc. on Wednesday committed to buying $2 billion of U.S. goods, more than half of which is beef and pork.

©2017 Bloomberg L.P.

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