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Higher meat production to pressure US prices warns Tyson Foods

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Meat and livestock prices are likely to fall further in North America in 2016, Tyson Foods, the US multinational meat processor, warned, even as it reported record profit.

The business has unveiled an operating profit of $704m, a company record, on sales of $9.15bn for the three months to April 2 2016. For the same quarter of 2015, operating profit was $547m on sales of $9.98bn.

But overall volumes were 0.9% lower, while prices achieved fell by 7.3% on average.

Despite the lower revenues, Tyson returned a record overall operating margin for the quarter, at 7.7%, with $144m in cost savings.

Meat production to rise

Overall domestic protein production – chicken, beef, pork and turkey – is set to increase by some 2-3% in 2016 compared to 2015 levels, Tyson said.

This will pressure product prices further, although lower feed costs will support profit margins.

Tyson has around 20% of the US beef, chicken and pork sectors in the US.

Chicken glut continues

By segment, chicken prices fell by 4.9% in the period, with sector sales $2.74bn for the three months ($2.83bn in Q2 2015). Prices dropped in line with lower feed costs.

The company says data from the US Department of Agriculture points to a 2% rise in US chicken supplies during 2016, while feed costs are expected to fall further.

Beef prices dropped by 14.2% and volumes rose by 2.8% in the period, with prices dropping in line with a well-supplied US market.

Tyson's beef revenues fell to $3.61bn in the quarter ($4.39bn).

Beef volatility

While it expects overall beef supplies to be up by 1% over the year, there may be periods of local volatility.

The company's pork sales dropped to $1.19bn from $1.21bn a year earlier.

Prices were down by 4.12% as the number of live hogs rose, although the volume handled by Tyson was up by 3.1%.

Tyson predicts that US hog supplies will increase by 2% during 2016.

Tyson's international operations are mainly confined to poultry processing in China and India, since the company divested its chicken interests in Brazil and Mexico during 2015.

International sales are consolidated into its Other segment, which made a loss of $26m on sales of $86m over the three month period, down from $222m a year earlier.

By Jamie Day

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