September 24, 2010

Higher corn prices may force Tyson Foods to raise meat costs

Tyson Foods Inc., the largest US chicken processor, said higher costs for corn may spur the company to raise prices for the meat.

Corn futures reached US$5.2375 a bushel this month in Chicago, the highest price for a most-active contract since September 2008, as US exports rose and yield forecasts were revised lower. Tyson, which uses corn and soymeal as the primary feed for chicken, has covered its corn needs through the end of 2010 and the company has options to buy the crop at about US$4 through December, said Gary Mickelson, a company spokesman.

However, Mickelson said the company believes higher corn prices will ultimately result in consumers paying more for chicken, since we'll be forced to raise our prices to offset the increase in input costs.

Rising feed costs may temper the expansion in US chicken output, analyst said. Chicken production may rise 2-3% in the first quarter of 2011 from a year earlier, less than his earlier projection of 3-4%, analysts said.

Tyson, based in Springdale, Arkansas, fell 11 cents to US$15.61 at 12:09 p.m. in New York Stock Exchange composite trading. The shares rose 28% this year earlier.

The company buys livestock from independent cattle and hog producers and does not expect the corn rally to have any short- term impact on its beef and pork units, Mickelson said.

In June, the US hog breeding herd was close to the smallest size on record after losses hit farmers in 2008 and 2009.

Tyson is the largest US chicken processor based on 2009 production, followed by JBS SA's Pilgrim's Pride unit and closely held Perdue Inc., according to WATT PoultryUSA, a magazine covering the industry.