April 27, 2022
Beef prices driven by strong demand, constrained production and record inflation, Tyson CEO says
A combination of market forces, including consistently strong demand for finished beef, constrained production due to labor shortages caused by the pandemic and record inflation, have been driving current beef prices, Tyson Foods president and chief executive officer Donnie King said in a prepared testimony delivered to the US House Agriculture Committee.
"Tyson does not set the prices for either the cattle we buy or the beef our customers purchase. These prices are set by straightforward market forces, namely available supply and demand," King said.
Additionally, an ongoing labor shortage – largely the result of the pandemic – has constrained beef production while consumer demand for beef continues to skyrocket. Addressing the issue, King explained the company "didn't have enough people to fully staff our plants," which resulted in a "sudden and swift rise" in the oversupply of cattle and a corresponding drop in cattle prices".
At the same time, "the price for finished beef — the beef that consumers buy at grocery stores — was rising, driven by skyrocketing consumer demand" and "basic economics holds that when demand is high and supply is low, prices will rise, which is precisely what they did."
The situation has been deepened by geopolitical issues, which are resulting in higher costs.
"The dramatic rise in input costs is reflected in the prices American families pay at the grocery store," King added.
For example, since March 2020, the cost of corn is up 127% and cost of soybeans are up 90%. Both are used in livestock feed, which comprise 65% of the cost of chicken and approximately 30% of the cost of finished beef. Freight transportation costs are also rising, with international shipping container rates up 68% and diesel fuel up 104% year over year.
Economists agreed that US businesses are not to blame for inflation.
"Experts, policymakers, and government regulators understand that the cause of the current inflationary environment is some combination of constrained supply, high consumer demand and continued unforeseen disruptions to the global supply chains caused by COVID-19 and exacerbated by geopolitical unrest," King said.
Lawrence Summers, former US Treasury Secretary, observed that "Rising demand, with capacity and labor constraints, are fully sufficient to account for what we observe in meatpacking."
Tyson noted that high prices have nothing to do with industry consolidation. Concentration in the beef processing industry has remained virtually unchanged over the last 30 years. During that time, data shows that ranchers more-often-than-not achieve higher profit margins than beef processors.
"In fact, in several years, ranchers made historic profits on live cattle while beef processors either lost money or barely broke even," King said.
Tyson Foods produces quality food at market prices.
"With advancements in how we source cattle and improvements in modern cattle production, the beef we produce today is consistently higher quality," King highlighted. "For example, choice and prime beef grades have increased from 60% in 2000 to 85% in 2020."
Tyson Foods' returns "are also strengthened by our efforts to become a more agile and efficient company through innovation and automation" helping the company to "keep costs to consumers lower, enable us to pay our team members more and allow us to further reinvest in our business," King said.
Tyson Foods continues to invest in the United States. In the country, the company invests more than US$15 billion a year with more than 11,000 independent farmers and feedlot operators who supply cattle, pigs, chickens and turkeys.
The company has facilities in 30 US states and last year implemented US$500 million in wage increases and bonuses for hourly team members.
King is the second Tyson Foods executive to recently testify before the US Congress on beef industry matters.
Shane Miller, who leads the beef and pork unit of Tyson Foods, testified before the Senate Judiciary Committee in July 2021.