CHICAGO (Reuters) - The chief executive of chicken producer Sanderson Farms Inc (SAFM.O) remains neutral on whether Russia will soon lift a ban on U.S. poultry exports and does not expect a recovery this year in the U.S. restaurant sector.
Speaking at the Reuters Food and Agriculture Summit, CEO Joe Sanderson also said the company has appealed antidumping duties applied by China on U.S. chicken, but there has been no response.
Russia, the top overseas buyer of U.S. chicken, has banned the product since the first of the year, claiming a chlorine rinse, used as a cleansing agent, violates its food safety rules.
Sanderson said that while the U.S. chicken industry had previously been able to work through such issues without much disruption, the high level of scrutiny within Russia this time has made him more cautious.
“(Vladimir) Putin himself made a comment about the Russian standards and the U.S. having to meet Russian standards. Now, if the chicken industry gets the attention of Putin, that’s a little different ballgame,” he said. “I remain neutral about it.”
Earlier on Monday, Russia’s lead negotiator in the dispute held out the possibility that the country would reopen its market to U.S. poultry, citing “evident and stunning” progress in talks between the countries.
To appease Russia, Sanderson has been testing a nonchlorine wash, but does not know yet if it is acceptable to Moscow.
The Russian market accounted for about 2 percent of the company’s sales in dollar terms last year, he said. While that is a small percentage, if Russia remains closed, the value of dark chicken meat will decline and that would be damaging to Sanderson Farms and the industry, he said.
Since Friday, Russia and the United States have exchanged letters regarding the chicken issue, but Sanderson said he did not know the contents of the letters.
Sanderson discouraged investors from buying company stock based purely on the idea that the Russian market will reopen.
“Most people in the industry are optimistic that it is going to open and analysts believe it will open,” he said. “I don’t want anybody to buy stock in Sanderson Farms because I am optimistic. I think it is better that I remain neutral about it.”
If Russia remains closed, Sanderson told Reuters Insider, the dark-meat chicken that it usually buys will be shipped elsewhere, likely to Vietnam, Hong Kong, Mexico, and Africa.
The company’s stock is trading above $51 per share, up 22 percent from January, an increase that has been due in part to industrywide improvements such as lower feed costs, higher chicken prices, and optimism for an improving economy.
Sanderson warned of an “explosive market” for chicken should Russia reopen, diners return to restaurants and production remain restrained. But he does not anticipate that.
The recession and high unemployment have hurt restaurant dining but has helped grocery sales.
“We have no indication that there has been any improvement in restaurant traffic,” Sanderson said. “We don’t see that happening in 2010.”
The CEO of the No. 4 U.S. chicken producer, which sells to a number of national restaurant chains such as Arby’s WEN.N, Chili’s (EAT.N), Applebees (DIN.N) and Olive Garden (DRI.N), said the job market will have to improve before the restaurant business recovers.
The exception has been sports bars, where he said consumption of chicken wings has remained strong.
“People have not given up their beer and their wings,” he said.
Chicken sales at grocery stores have remained strong as people have switched to at-home dining. he said.
Sanderson shares were up about 1 percent at midday on Monday.
Reporting by Bob Burgdorfer, editing by Matthew Lewis