January 2, 2007


Rising chicken prices to boost Tyson profits



Tyson Foods Inc. could likely benefit from rising chicken prices in spite of surging corn prices, said Farha Aslam, industry analyst with Stephens Inc.


Tyson CEO Dick Bond predicted positive Q1 results for the three month period to end Jan 31 during the company's November earnings call, and said higher grain prices would have to be passed on to consumers.


Aslam agreed, noting that consumers would bear some of the cost of higher feed prices, Wholesale chicken prices have risen by more than 30 percent in the last 60 days, according to USDA statistics.


Prices would continue to climb going forward as the production cuts previously announced by industry participants take effect, predicted Merrill Lynch analyst Diane Geissler in a recent report.


The Springdale-based meat producer confirmed its 5 percent poultry reduction was fully implemented as of October, and Geissler said those cuts should be fully realized in the first few months of 2007.


Both analysts pointed to the production cuts as one of the fundamental reasons for the recent pricing improvement.


Supply could be tighter in the coming months as smaller players controlling 40 percent of the industry have been facing constraints with working capital due to higher corn costs. Corn prices have risen 80 percent over the last year. Smaller poultry processors would be forced to scale back production, predicted Aslam.


The cuts announced by major producers like Tyson Foods and Pilgrims Pride were made on the honour system and it takes a full growing cycle, roughly 67 days, to see the results, Aslam said.


Chicken prices need to increase 4 to 8 cents more per pound to offset the increase in feed prices, Aslam said.

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