Tyson Foods Inc. reported a drop of 54 percent in quarterly profit as costs to feed its chickens soared and estimated domestic poultry production will decline 4 percent over the next year as expensive corn forces industry cutbacks.
The high costs for corn and other feed ingredients, such as soybean meal, that squeezed meat producers over the past year are likely to persist in 2012, Tyson executives said during a Nov. 21 conference call with analysts that followed the release of quarterly results.
“I would suspect grain costs in 2012 will be at or above 2011” levels, Donnie Smith, chief executive for Springdale, Ark.-based Tyson, said during the call. “It just stands to reason that we’re going to have incremental increases” in corn and soybean meal costs, he said.
Tyson, the largest U.S. meat processor, and other beef, pork and poultry producers were increasingly squeezed as corn rallied to all-time highs near $8 a bushel earlier this year. Corn is a primary feed ingredient for most of the industry, comprising two-thirds to three-fourths of the rations to fatten chickens, pigs and cattle to slaughter weight.
For Tyson, costs for corn and other feed ingredients rose by $675 million in the company’s fiscal 2011, which ended Oct. 1. That’s higher than an increase of $500 million Tyson projected in May, and would be up 17 percent from the approximately $4 billion the company spent on feed in 2010, according to industry analysts.
High feed costs prompted many poultry producers, including Tyson, to curb production in recent months. With cattle inventories also shrinking, the total meat protein supply in the U.S. may decline 2 percent to 3 percent next year, Tyson said.
Tyson’s net income during the three months ended Oct. 1 fell to $97 million from $213 million during the same period a year earlier, according to a statement. Revenue during the quarter rose 13 percent to $8.4 billion, though that was offset as the company’s expenses rose 18 percent.
Chicken operations posted an operating loss of $82 million, after turning a profit of $121 million a year earlier, Tyson said.
While Tyson’s costs are up, the company’s beef, pork and poultry businesses are profitable so far in fiscal 2012 as the company commands higher prices from retailer and restaurant customers. Lower supplies are expected to drive push meat prices higher next year, Tyson said.
“We will continue to build on the progress we've made in recent years and expect 2012 to be another strong year,” Smith said during the call. The company projected 2012 sales to exceed $34 billion, up over 5 percent from 2011, mostly behind higher meat prices.
Tyson expects a “gradual reduction” in fattened cattle supplies of 1 percent to 2 percent in its fiscal 2012 and for beef exports to remain strong, the company said in the statement. In pork, Tyson expects 2012 hog supplies will be “comparable” to 2011 and also predicted further export strength, resulting in continuing “strong fundamentals” for the business.
Corn prices have doubled since the middle of 2010 amid weaker than expected harvests and growing demand from the ethanol industry. By the end of next summer, U.S. corn stockpiles are expected to reach a 16-year low, according to an Agriculture department forecast.
But corn futures tumbled this fall, and an outlook for a larger U.S. crop next year may push prices even lower, providing some relief to livestock feeders, analysts say.
During a separate Nov. 21conference call with reporters, Tyson executives declined to provide further details on their outlook for corn prices or say whether the prospect for cheaper grain would lead to higher chicken production.
It’s “way to early” to make predictions on the corn market next year, Smith said. The price of corn “is what it is, and we’ll pay what we need to pay to feed our chickens.” The company will “balance our supply with our view of demand,” Smith said during the earlier call. “If anything, we’ll be a little short” on production.
In trading Nov. 21, corn futures for delivery next month fell 12 ½ cents to $5.97 ¾ a bushel, a seven-week low. December 2012 futures dropped 9 cents to $5.50.
Tyson controls about 22 percent of U.S. production in both beef and chicken and 17 percent in pork, according to a company presentation to investors earlier this year. In trading Nov. 21, Tyson shares fell 19 cents, or 1 percent, to $19.26. The stock is up 12 percent this year.