A caution by Tyson Foods over beef and pork processing
margins overshadowed a forecast that it is from 2014 to grow sales by at least
3% a year, led by a surge of 12-16% in foreign takings.
James Lochner, the Tysons chief operating officer, warned
that the meat giant's margins in beef processing "have been compressed
throughout the past month, as the value of beef has fallen more than the price
In pork too, the group has "experienced some margin
compression in the current quarter", Mr Lochner told an investor conference, although
he added that "there have been signs of improvement recently".
According to Hedgersedge, meat processors were on Tuesday running
at a loss of $46.25 per head on cattle, but had returned to a positive margin
in pork, of $6.65 per hog, from a loss of $10.00 per animal a week ago.
The revival in pork margins reflects a drop in slaughter
rates, down nearly 4% week-on-week last week, as packers pulled back - a factor
which accelerated a decline in hog prices, so easing the squeeze on processors.
Chicago lean hog futures for April on Monday fell below 81
cents a pound for the first time in nine months.
"Weather was a contributor" to the drop in slaughter rates, "but
trade reports indicate that product has just not been moving at a rate to justify
continued runs of 2.1m head and more"Paragon Economics and Steiner Consulting
'Another beef plant
However, prices of cattle, which in being fattened outdoors
are more affected by the cold weather sweeping the US, have recovered in Chicago
from four-month lows reached in mid-February, extending misery for beef
"Beef packer margins were below the 2007-11 average for
virtually all of 2012," Paragon Economics and Steiner Consulting said in a
"From August onward, gross beef margins were lower than the
five-year average every week except three and have been lower than that average
every week so far in 2013."
Factoring in total costs, packers' "net margins since August
have been, by all reports, deep in the red", a factor seen as spurring Cargill's
closure in January of a Texas plant.
"It is likely, in our opinion, that another beef slaughter plant
could close before cattle numbers possible increase in late 2014 or 2015,
assuming a return to normal rainfall in major grazing areas this year," the
The concern over margins sent Tyson shares down 6.3% to $21.79
in early deals, overshadowing a company forecast of revenue growth of 3-4% a
year from "2014 and beyond".
Investors are currently factoring in growth of 2.4% in Tyson's
2014 fiscal year, which starts in late September, and 3.0% in fiscal 2015.
Tyson chief financial officer Dennis Leatherby said that revenue
growth would be fuelled by 6-8% growth in takings from value-added products,
such as branded retail meats, and 12-16% in foreign sales.
"International growth is focused on production and further
processing in Brazil, China and India, in addition to our long-standing poultry
business in Mexico," he said.
The group is planning to lift chicken production in China by
one-half by 2014, to 3m birds per week, when it will overtake Mexico as Tyson's
biggest foreign poultry operation.
Mexican output staying at 2.7m birds per week.
Chicken production in Tyson's Brazilian operations, a major
exporter to Europe, will rise by 54% to 2m birds per week, and output in India
by 61% to 450,000 birds per week.
Tyson shares recovered to $22.22 by 10:40 New York time (15:40 UK time), down 4.5% on the day.