090112 AMI Details "Challenges" Facing Meat Industry in 2009

January 5, 2009

Springdale, AR -- The American Meat Institute said continued fallout from the national ethanol policy and work force issues would be key concerns for meat and poultry processors such as Tyson Foods in 2009, according to Rob Brennerman, chairman of the trade group.

Brennerman in a Dec. 11 Washington news conference said beef and pork prices are expected to rise 10 percent in 2009 as record grain costs and prolonged drought conditions have pared herd sizes. A smaller herd means less meat, which should net higher prices.

Some analysts predict processors will have a difficult time raising prices during a recession, meaning they may likely have to shoulder the losses. Analysts expect meat processors to report dismal returns in the first and second quarters, largely relating to lower meat prices.

Stephens Inc. analyst, Farha Aslam expects Tyson Foods will lose 40 cents per share in the quarter ending Wednesday - the company's first quarter in fiscal 2009. The street consensus is an 11 cent loss for the quarter. (Stephens conducts investment banking services for Tyson Foods and is compensated accordingly.)

Analysts say the meat industry overall is cutting production, which will bring profit back by the summer, but ethanol and immigration reforms are lingering problems for the industry.

Tyson Foods CEO Dick Bond has been an outspoken opponent of the U.S. government's ethanol mandate, which he says largely subsidizes the ethanol industry at the expense of grain users.

In 2008, Tyson Foods spent an extra $600 million on grain used to feed its chickens. During that time the company posted an operating loss of $118 million in the chicken segment.

Grain is the largest input cost that processors incur in raising a chicken. Raw feed ingredients - corn and soybean meal - comprise about 67 percent of the total cost. This is up from about 52 percent a couple of years ago, according to Richard Lobb, spokesman for the National Chicken Council.

Ethanol opponents say the demand for corn spurred by more ethanol plants coming online in 2008 helped propel the grain to more than $7 per bushel during the summer. Agri-economists argue that high oil prices and heavy market speculation were equally responsible for the rapid rise in corn and soybean prices during the first half of 2008.

One thing is certain, the corn-based ethanol production mandate rises each year through 2015, according to the chicken council. Unless it's repealed or altered, corn will continue to be a hot commodity.

Brennerman said ethanol tax credits, import tariffs and mandates can be undone and the industry should never stop fighting for what is right to maintain a healthy economy and an affordable food supply.

The National Chicken Council estimates nearly 5,000 processing jobs were lost in 2008 as meat and poultry manufacturers closed plants and corrected production while record losses mounted.

Aside from high input costs, food processors also face work force challenges as the American labor pool has changed, according to Brennerman.

He said foreign-born workers are needed by the industry and that is not likely to change.

Clearly manufacturers that rely on an immigrant work force must work closely with federal guidelines using tools like E-Verify, set to expire at the end of March, according to the American Meat Institute.

AMI advocates that the program get reauthorized beyond March and is pushing for an enhancement that allows E-Verify to work with other government databases.