US meat producers off to strong start in 2010

A Wall Street upgrade of Tyson Foods Inc. shares earlier reflects investor appetite for US meat producers, with the industry looking to capitalise on lower feed-grain costs and stronger prices this year.

Meat producers are enjoying cheaper feed-grain prices and lower supplies, after chewing through expensive grains purchased during the 2008 commodities boom and following yearlong production cuts in chicken and pork.

On Thursday (Jan 14), Tyson was raised to "outperform" from "neutral" at Credit Suisse. "While we clearly missed the bottom on Tyson stock, it is still underowned, underloved and in the early stages of a cyclical rebound in protein processing," said analyst Robert Moskow.

In the past three months, meat producers have outpaced the 7% gain by the Dow Jones Industrial Average (INDU 10,711, +29.78, +0.28%) and the percentage gain by the S&P 500 Index (SPX 1,148, +2.78, +0.24%).

Tyson Foods' (TSN 14.04, +0.73, +5.48%) shares are up 12%, while pork producer Smithfield Food Inc. (SFD 16.58, -0.38, -2.24%) is up 19%. Chicken supplier Sanderson Farms Inc. (SAFM 46.50, +1.31, +2.90%) is 21% higher in the same three-month period.

Futures in corn and soymeal have been sliding after the US Department of Agriculture predicted a record crop for both grains earlier this week. Based on the most active contracts, corn futures are down 10% for the week. Soymeal futures are off 3%.

Smithfield, which has reported four straight money-losing quarters, said it expects to turn a profit by spring 2010. The world's top pork producer has said profit will be bolstered by its grocery packaged-meats business, cost cuts and higher hog prices.

Lean-hog prices have been climbing since August as producers work through supplies.

In trading earlier, Tyson shares climbed 5%. Sanderson Farms rose 3% but Smithfield fell 2%.