090136 Cattle Falls on Concern Recession May Cut Demand

January 25, 2009

(Bloomberg) -- Cattle prices fell the most in a week on speculation that demand for U.S. beef will shrink as the global recession deepens and the dollar climbs. Hogs rose.

The MSCI World Index of equities dropped for the ninth time in 10 sessions on concern the economy's slump will slash company profits. The dollar gained as much as 1.8 percent today against a basket of six major currencies. The price of U.S. wholesale beef dropped 15 percent in the second half of 2008.

"The economy has kept under wraps exports of beef and even pork," said Walt Hackney, the owner of Hackney Ag in Omaha, Nebraska. "We've needed a lot of optimism to regenerate exports, and we haven't had it. Exports are under pressure and will continue to be."

Cattle futures for February delivery fell 1.475 cents, or 1.7 percent, to 86.2 cents a pound at 11:12 a.m. on the Chicago Board of Trade. A close at that price would be the biggest drop for a most-active contract since Jan. 8. Before today, futures dropped 6.1 percent in the past year.

Feeder-cattle futures for March delivery declined 1.625 cents, or 1.7 percent, to 92.75 cents a pound.

U.S. slaughterhouses processed about 608,000 head of cattle last week, down 6.9 percent from a year earlier, Department of Agriculture data show.

Wholesale beef rose 0.76 cent, or 0.5 percent, to $1.5298 at midday, partly because of reduced supplies.

Hog futures for February delivery rose 0.15 cent, or 0.3 percent, to 60.1 cents a pound. The price declined 4 percent last week.

Wholesale pork yesterday climbed 0.49 cent, or 0.9 percent, to 57.09 cents a pound, USDA data show. ### 090135 Tyson Foods to Post Loss January 25, 2009

Springdale, AR -- Anxious eyes will be watching the new face of Tyson Foods Inc. as the meat giant is expected to report its worst first-quarter loss in more than a decade.

The Wall Street consensus is a 21-cent loss among nine analysts who follow the company for investors.

This pales in comparison to the 10-cent per share earnings reported a year ago and the 16 cents earned in the previous year.

But much has changed in the protein processing world in the past year. Pittsburg, Texas-based Pilgrim's Pride filed bankruptcy and Brazil-based JBS set out to consolidate the U.S. beef industry by buying Kansas-based National Beef and Smithfield Foods' beef division. Grain prices hit all-time highs in July, only to plummet 90 days later.

The recent resignation of Tyson Foods CEO Dick Bond was a clear indication to analysts that the Tyson family wanted to take the company in a different direction after one of the toughest years on record for the poultry industry.

Ironically, Bond's exit came amid big losses, just like the environment he inherited when he took over as skipper in May 2006, following second-quarter losses of $127 million, or a deficit of 37 cents per share.

Profits followed in 2007, but hit a wall as grain prices began to escalate the following year.

On Monday, interim CEO Leland Tollett will unveil his vision for the next quarter or so and will likely answer tough questions from analysts, pressing for details about how he plans to turn the rags into riches during the deepest economic recession since 1957, according to experts.

The street's lowest expectations were posted by Stephen Inc. analyst Farha Aslam. She estimates Tyson Foods will report a 40 cent per-share loss on Monday. Aslam expects Tyson Foods will report a net-income loss of $149.3 million for the 90-day period ending Dec. 31, compared with a net income of $33.1 million in the year-ago period. (Stephens Inc. conducts investment banking services for Tyson Foods and is compensated accordingly.)

Operating losses are certain for the poultry segment as the industry processing margins from October through December were a paltry 2 cents per head. Aslam predicts Tyson lost $250 million in its chicken segment. Aslam estimates Tyson's long position in grain likely cost the company $100 million in markdowns at the quarter's end because commodity prices have fallen sharply since Tyson purchased the grain. Some of that cost could be offset as the grain is used, if poultry prices rise and margins improve, analysts said.

Beef margins have improved from a year ago. But no profits are expected by analysts, as beef sales are expected to be down about 7 percent or $2.7 billion for Tyson Foods.

"Slack in foodservice demand and cash-strapped consumers trading down protein cuts have hurt beef prices, but packers have been showing an unprecedented discipline in slaughtering cattle, providing some pricing stability," said Steve Kay, publisher of Cattle Buyers Weekly.

Pork has been a bright spot for processors in recent quarters, but operating profits are expected to lag behind last year as exports to Hong Kong and China dipped 17 percent in November, Aslam noted.

She estimate Tyson will report pork profits of $51.5 million, down from $81 million a year ago.

The prepared foods segment is poised to report operating profits of $21.5 million, down from $36.5 million compared to the previous year's period.

Heavier debt levels are also weighing down profits. Analysts predict Tyson Foods' interest and other borrowing expenses are up 12.5 percent from last year -- tough to make up when profits are down, said Ann Gilpin, analyst with Morningstar.

Shares of Tyson Foods closed Friday at $8.66, up 14 cents. The share price has ranged from $19.50 to $4.40 in the past 52 weeks.