(Updates with comments from JBS chief)
By Tom Polansek and P.J. Huffstutter
CHICAGO, March 12 (Reuters) - Mexico, the biggest buyer of U.S. chicken, and other major countries imposed new import restrictions on Thursday after a virulent form of bird flu was found at the heart of America's poultry region.
The virus' discovery in Arkansas is expected to prompt similar moves by up to 40 more countries, and the restrictions are likely to depress prices and hurt U.S. poultry producers, economists said.
Top U.S. poultry producers like JBS SA unit Pilgrim's Pride Corp and Sanderson Farms Inc downplayed the risk to operations, but the Arkansas case sent their shares tumbling on Wednesday ahead of an official confirmation.
"We will see some markets shutting their imports, mainly from that state, but not from the whole country," said Wesley Batista, chief executive officer of meats company JBS SA .
Fearing the virus' spread, Mexico, Canada and the European Union, along with other importers, on Thursday banned poultry imports from Arkansas. Missouri, Minnesota, California, Washington state and Oregon already face bans or restrictions.
China and South Korea have total bans on U.S. poultry exports from prior avian flu cases.
After recent cases in a handful of other states, the U.S. government on Wednesday confirmed the infection of highly pathogenic H5N2 avian flu in turkeys in Arkansas, home to Tyson Foods Inc, the world's biggest chicken company. The virus is unlikely to kill enough U.S. birds to offset the drop in overseas demand due to trade bans.
While the H5N2 strain poses no threat to humans, according to the USDA, it is deadly to poultry. Avian flu can spread rapidly through a flock, killing birds in as little as 24 hours.
The USA Poultry & Egg Export Council, an industry group, said it expected 30 to 40 additional countries to impose new trade restrictions on U.S. poultry and eggs in the $5.7 billion export market.
There will be "more product on the domestic market and that will depress prices," said Jessica Sampson, agricultural economist at Livestock Marketing Information Center.
The United States exports about 20 percent of the chicken it produces and about 14 percent of the turkey produced, according to the center.
Last year, China and South Korea accounted for about $428.5 million in export sales of poultry meat and products, according to U.S. Department of Agriculture data.
With the export market already hit by the strong dollar, "we don't need anything else that would make those exports any softer," said Mike Cockrell, chief financial officer for Sanderson Farms.
Shares in Sanderson, Tyson and Pilgrim's Pride were flat to lower on Thursday.
So far, viral strains of bird flu have been identified mostly in wild birds and commercial turkey farms, predominantly west of the Rocky Mountains. But the industry has been on alert since Minnesota and Missouri confirmed cases in the past week.
Minnesota is the nation's leading turkey producer, while Arkansas ranks third and Missouri is fifth, according to the USDA. The poultry sector fears the virus could spread through the much bigger domestic chicken industry. Arkansas is the third-largest chicken producer.
Poultry companies have been enjoying large profits recently thanks to high meat prices and declining feed costs. In January, Tyson reported operating income of $351 million for its chicken business in the quarter ended Dec. 27, up almost 40 percent on the year.
Trade restrictions could drive down prices by 5 percent to 10 percent in the United States for dark meat, which makes up the majority of chicken exports, said H.L. Goodwin, a poultry economist at the University of Arkansas.
How poultry companies will handle such pricing woes is not yet known. At North Carolina-based Butterball LLC, a "limited number" of turkeys from farms in Missouri and Arkansas that supply birds to the company have been diagnosed with H5N2 bird flu, according to a statement.
The company, which accounts for 20 percent of all U.S. turkey production, declined to comment on its pricing.
Tyson also declined to discuss the impact bird flu may have on the company but said no flocks grown for Tyson have been diagnosed with the virus.
Tyson "has the ability to ship products from multiple states, so we believe we can meet demand for both domestic and global markets," company spokesman Worth Sparkman said. (Reporting by Tom Polansek and P.J. Huffstutter in Chicago, Additional reporting by Gustavo Bonato in Sao Paolo; Editing by Jo Winterbottom and Cynthia Osterman)