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There are major issues in the beef market
(Wikimedia Commons)
There are major problems in the beef market.
On Monday, Tyson Foods, one of the largest meat producers in the world, warned that almost everything seemed to be going wrong in the beef market.
"Our beef business suffered from export market disruptions that had an $84 million impact on third-quarter results," the company said on Monday, "and we continue to see very high cattle costs at a time when product values and export issues are making it difficult to realize expected revenue levels in this spread business."
Tyson said in its results that its beef segment saw an 8% decrease in supply during the quarter. This, in turn, drove up the price of cattle it did have and created problems in the export market.
And this increase in beef prices also drove up the price of competing proteins such as chicken and pork while also increasing operating costs.
So all around a disaster.
Back in July, Bloomberg reported that major drought conditions in the Canadian plains left the country, the world's seventh-biggest beef exporter, with its smallest herd in 22 years. Bloomberg noted that Canada exports more than a third of its cattle and beef to the US.
Live cattle prices, meanwhile, are near record highs.
(FinViz)
And so given that beef is by far Tyson's biggest revenue generator — for the first nine months of 2015, Tyson's beef segment accounted for $12.8 billion in revenue; chicken, the next largest segment, brought in $8.4 billion in revenue — this is not good news.
Tyson shares, as a result, were down more than 9% in early trading on Monday.
In 2016, Tyson doesn't think the situation will markedly improve.
The company expects supplies will increase 1% and expects the market will still face periods of imbalanced supply and demand. Tyson's beef segment should break even in 2016, but this segment typically grows 2.5% to 4.5% per year.
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