Cheap Oil Is One Culprit as American Chicken Exports Diminish

(Bloomberg) -- American companies are shipping less chicken overseas, and cheap oil isn't helping.

Profits from oil production in South American countries like Venezuela and Western African nations often translate into poultry purchases, said Russ Whitman, senior vice president at commodity researcher Urner Barry. Cuba, a major buyer of American chicken, will resell oil at a profit and buy poultry.

“When oil prices plummet the way they have, these countries can't turn cash into food,” Whitman said.

Oil is just one factor compounding the anemic export environment. Weak currencies in Mexico and South America are hurting U.S. meat exports. In recent weeks, China has slowed down purchases because of weak consumer demand, Sanderson Farms Inc. executives told analysts Thursday on a call to discuss financial results.

The Asian behemoth had been buying up significant amounts of poultry and pork, but now there's oversupply as restaurants in the newly reopened, post-Covid-19 economy struggle to find patrons. U.S. shipments will likely stay slow through June, according to Sanderson.

Prices for leg quarters, a commonly exported cut, have touched seasonal prices in May that are the lowest in at least ten years, according to government data. At 32.71 cents a pound, prices are down almost 30% from a year ago. In the first three months of the year, exports of chicken legs to Cuba were down 35% from the same period in 2019, U.S. Department of Agriculture data showed.

Meanwhile, oil prices are still well below pre-Covid-19 levels, with global demand crushed by the pandemic. At around $37.50 a barrel, global benchmark Brent crude in London is down more than 40% from the start of the year.