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November 22, 2011

 

Increase in grain prices may drive up meat prices
 

 

Grain prices may rise again next year according to the head of Tyson Foods Inc on Monday (Nov 21) which would pass price rises on to consumers and food-service buyers.

 

Higher feed costs have driven a sharp increase in beef prices while even the oversupplied chicken sector has seen some recovery as producers cut back supplies after what Tyson Chairman and Chief Executive Donnie Smith called two of the toughest summer months the industry has ever experienced.

 

Volatile grain markets left Tyson nursing losses on hedging contracts while chicken demand was poor over the key July 4 holiday weekend, leaving the company with a 54% decline in fiscal fourth-quarter profit.

 

Smith said Tyson's chicken segment returned to profitability in October, and forecast US industry supplies would drop 4% in its 2012 fiscal year, with beef production down 1-2% over the same period.

 

The executive said on a post-earnings call that he expected US gross domestic product to rise by just 1.5% next year, leading him to keep a close eye on retail demand as the company continued efforts to pass on higher feed costs.

 

Smith also said Tyson was pushing its international expansion "as hard as we can" to offset weakness in domestic markets which he saw flat for both retail and food-service segments.

 

Tyson forecast sales would rise above US$34 billion next year from US$28.4 billion in fiscal 2011, and Smith said on the call that the company would pursue its "conservative" hedging strategy despite wracking up mark-to-market losses on grain futures contracts.

 

For the quarter ended October 1, Tyson reported a profit of US$97 million compared with US$213 million a year earlier. Per-share earnings fell to US$0.26 from US$0.57, undershooting analysts' expectations.

 

Earnings in the beef segment - the largest top-line contributor - were down 2.5% as revenue rose 16% on a 19% jump in average prices, but volume fell 2.3%. The chicken business swung to a loss despite 9.2% revenue growth, and volume rose 3.7% with 5.3% higher prices.

 

Profits at Tyson's smaller pork business fell 10% as revenue increased 14%. Volume rose 1% and prices jumped 13%.

 

Tyson shares were recently down 1.6% at US$19.14.

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