071245 Beef Losses Prompt Cutbacks

Beef losses are mounting for Tyson Foods Inc. and the rest of the beef industry as packers lose about $45 per head for each cattle slaughtered, according to Hedgersedge.com

The troubled market conditions have cost the Springdale meat giant an estimated $1.2 million per day over the past two months. Tyson Foods is the nation's largest processor in terms of market share, according to Cattle Buyers Weekly. Losses in the U.S. beef industry range from $5.6 to $5.8 million a day, based on recent slaughter numbers.

The heavy beef losses have prompted four of the nation's largest processors to cut production from now through the holidays in hopes of lowering live cattle prices.

While Tyson Foods doesn't disclose specifics about slaughter numbers, it did confirm that its beef plants were operating at reduced hours. The company also said it would run shorter production weeks because of the holidays and current market conditions.

The beef business has been compromised by tight cattle supplies, high cattle prices and abundant supplies of lower-priced chicken and pork, which consumers likely favored amid record gas prices, economists said.

Cargill Meat Solutions, JBS-Swift & Co. and National Beef Packing Co. said Wednesday they will also cut production.

"They are talking the talk, but it remains to be seen how far the cuts will go. It's pretty easy to cut back at a time when we are looking at shorter weeks due to the holidays," said Kevin Good, market analyst with Cattle-Fax, a member- owned livestock marketing service in Englewood, Colo.

The meat packing industry has been criticized for its lack of discipline in terms of sacrificing profits in order to gain market share.

Steve Kay, publisher of Cattle Buyers Weekly said the recent production cutbacks are likely just window dressing because total slaughter numbers are still running up to 2 percent higher than a year ago. He said the planned kill for last week was 652,000, up from 644,000 last year.

Beef processing margins took a deep dive this fall when the new kid on the block, JBS-Swift, added a second shift at its Greeley, Colo., processing facility. The increased demand drove up live cattle prices as the remaining players including Tyson Foods, chose to defend their market positions and maintain their slaughter levels, said Farha Aslam, analyst with Stephens Inc.

Aslam said there were weeks in October and November when the beef companies were losing as much as $90 per head. (Stephens Inc. conducts investment banking business with Tyson Foods and is compensated accordingly.)

Analysts said the cutbacks should have made months ago. And while cattle prices have tapered down to $92 dollars per hundred weight in recent days, Good said the decline in price was due to seasonal selling before the end of the year and not the market reacting to beef processing cutbacks.

Supplies of market-ready cattle have been tight for some time due to herd reductions because of last year's drought and higher feed costs.

Analysts said it will likely be early spring before beef companies see cattle prices fall to a level that result in profitable processing.

Overall Beef Market Share

Tyson Foods Inc. 25%

Cargill Meat Solutions 21%

JBS-Swift & Co. 12.5%

National Beef 10.5%

Smithfield Corporation 6%

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