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Tyson Cuts Slaughter Numbers!

Mike

Well-known member
Springdale-based Tyson Foods Inc. confirmed Thursday it has curtailed production at all nine of its U.S. beef processing plants.

Lack of demand and poor market conditions were cited as reasons for the action.

The world’s largest meat company suspended cattle slaughter Thursday at its plants in Finney County, Kansas; Denison, Iowa; and Dakota City, Nebraska.

“In terms of daily slaughter, today (Thursday) we will be running 35 percent of our normal slaughter. For the week we are running at reduced hours at all nine of our domestic plants,” said Tyson spokesman Gary Mickelson.

Beef, while a large part of the company’s sales, has also proven to be a drag on earnings.

In the first three quarters of 2006, beef sales totaled $8.8 billion and represented 44 percent of Tyson Foods’ total revenue. For the quarter ended July 1, the beef segment lost $10 million compared to profits of $36 million in the third quarter of 2005. The company reported a total loss of $52 million in the quarter ended July 1.

The company also on Thursday confirmed the sales contracts of the first five loads of beef headed for Japan just one week after the 30-month ban was lifted.

“We have more orders pending price confirmation with our Japanese customers,” said Tyson spokeswoman Libby Lawson.

As the U.S. beef industry returns to the Japanese market, the U.S. Meat Export Federation (USMEF) has launched an initiative to help boost the demand for beef internationally.

The USMEF is a non-profit trade organization based in Denver, with offices in Seoul, Tokyo, Osaka, Hong Kong, Shanghai, Singapore, Taipei, Moscow, St. Petersburg, Mexico City and London.

“It is our primary responsibility to promote beef products and the safety of our system to the Japanese consumers in an effort to restore the confidence and trade volume to the pre-ban status,” said Lynn Heinze, USMEF spokesman.

Immediately following Japan’s reopening of its market to U.S. beef, the federation began trade team talks with Japanese buyers visiting American beef packers.

Heinze estimates 20 to 30 small teams of Japanese restaurant owners and other food supply companies will visit U.S. packing plants in the next few weeks. The first team has already visited, according to Heinze.

We feel it is important to work diligently at reclaiming the hearts and minds of the Japanese consumers,” Heinze said.

Tyson Foods said it will work with the export federation should any of the teams want to visit a Tyson facility. To date there have been no requests made, according to Lawson.

In 2003, the Japanese bought $1.4 billion of U.S. beef before the first case of mad cow disease surfaced on American soil. The Japanese market environment has changed following the 2003 ban. Not only has South America, Australia and New Zealand moved into the Japanese market since 2003, but Heinze said the Japanese are eating less beef than before the mad cow scare.

Prior to December 2003, beef accounted for about 5 percent of the protein consumed in Japan, according to Heinze. Now beef represents only about 3.5 percent of the protein in the Japanese diet.

“There is no doubt it will take some time to reclaim the market share the U.S. had before 2003. The next few months are critical in recapturing their confidence. Value and quality of the U.S. product should eventually trump the competition,” Heinze said.
 

Jason

Well-known member
This is funny. Some have tried to tell us Tyson was lowering the fed cattle bids so they could consolidate and control more of the kill. Now they are only running at 35% capacity. That will really make them control the industry.

The article seems to blame the loss of the Japanese export market for this, but at it's best exports to ALL countries made up 10% of American production. The reduction is the kill is 65%.

It looks like maybe the high domestic price of beef and the reduction of disposable income due to energy costs has worked its way back to the packers.
 

Mike

Well-known member
No, I think what's funny is they were saying just a few short months ago that the border needs to be open because they were running at less than full capacity because they didn't have enough cattle.
 

Brad S

Well-known member
Any good capitalist must be concerned by industry consolidation that approaches the fed beef industry. When a move this strong is employed by such a heavyweight, it must be viewed by oversight. Perhaps only I would be criminal enough to short fed beef then announce a slowdown then lift the shorts and take some longs.


In anycase, the industry is sufficiently concentrated that this sort of manipulation must be ruled out.
 

RobertMac

Well-known member
Jason said:
It looks like maybe the high domestic price of beef and the reduction of disposable income due to energy costs has worked its way back to the packers.

Packers are margin operators...the high cost of live cattle procurement vs. beef wholesales price limits because of cheaper protein alternatives (poultry and pork) is killing their margins. They have done a poor job of convincing the public that beef is a quality product worth paying extra!

Brad said:
In anycase, the industry is sufficiently concentrated that this sort of manipulation must be ruled out.

Brad, I didn't think you were on this side of the fence! :wink:

Mike said:
No, I think what's funny is they were saying just a few short months ago that the border needs to be open because they were running at less than full capacity because they didn't have enough cattle.

Cutting processing should reduce the wholesale supply of beef and increase the price...supply/demand.

Cutting processing should backup cattle in the feed lots increasing carcass weights and the number of market ready cattle to be sold...increasing supply should reduce price...supply/demand.

Drought should cause producers to sell cattle they wouldn't normally be selling thus increasing the supply of live cattle and should reduce price...supply/demand. Seems like there was a drought involved the last time the market broke.

Got to go...hear the black helicopters coming. :wink:
 

Jason

Well-known member
Check the markets fats sold higher, in the high 80's while Tyson is losing money.

Even though wholesale prices are slipping, the shortage of fat cattle is driving prices higher.

Agman has told us it is extreme when a company will slow the chains because of the risk they expose themselves to. In this case Tyson steps down, Cargill, Swift and the others will be left with less competition to buy the same number of fats.

If the result is a decline in fat prices, (it depends on how short the supply is), Cargill, Swift etc. might be able to move back into a positive margin. If that happens tell me how it has helped Tyson?

I would like to hear more from Agman as we are really just speculating based on a news report.

Regardless Tyson is losing money in every protien and they are hurting from it. The pain will follow for primary producers if the dynamics don't change.
 

Brad S

Well-known member
RM

The concentration issue is real, no matter where you sit. Perhaps I judge others by myself, but I could pull some stunts controlling half the fed market, taking a position on the futures market and announcing a slow down. If there's no shennanigans a lookabout will vindicate. Remember the one unique thing about the packing olligopsany is when cattle are ready to harvest, they must go. The feeder is forced into the market. Don't like airfares - drive. Don't like Pepsi/Coke prices - drink water.
Now the owner of fed cattle has only one option - puke them. We used to feed alot of steins with the one principle, sell them before you place them. Cattle feeders should have an exit strategy when they place cattle to avoid this crunch down.
 

Jason

Well-known member
Brad, I am curious is the market would allow big numbers of short positions to be traded for longs. Wouldn't that raise flags to the SEC?

I haven't done enough trading to know, but I bet anyone could do the same thing. I am looking at forward contracting some barley. I can get about $30 a tonne more than the spot price, and it looks as if the forward prices will be similar to todays when the harvest swings into full gear.

I could make money just by specing a load, never even loading a truck.

The downside would be if I get hail or some other problem, and I don't have the barley to fill the contract, and cash prices move higher so I lose by buying a load then.

I assume the cattle trades would work the same way. They could lose or gain.
 

Sandhusker

Well-known member
Jason said:
Brad, I am curious is the market would allow big numbers of short positions to be traded for longs. Wouldn't that raise flags to the SEC?

I haven't done enough trading to know, but I bet anyone could do the same thing. I am looking at forward contracting some barley. I can get about $30 a tonne more than the spot price, and it looks as if the forward prices will be similar to todays when the harvest swings into full gear.

I could make money just by specing a load, never even loading a truck.

The downside would be if I get hail or some other problem, and I don't have the barley to fill the contract, and cash prices move higher so I lose by buying a load then.

I assume the cattle trades would work the same way. They could lose or gain.

Did you look into selling calls? Selling calls at the price you want to sell product is always worth considering.
 

Brad S

Well-known member
Jason in your situation we have a cash settle in the event the crop doesn't come in as planned.

As for the SEC tracking down anything, I'm of the opinion that Tyson bought favor with Governer Clinton's wife by a series of positive trades without being discovered. One would think huge moves like Tyson could wield would cause investigation - good point.

Ultimately, I'd suggest that I've been removed from the cattle feeding market due to insufficient profit opportunities just like Tyson. At this point I am perfectly ok with Tyson making good business decisions. When I have a slowdown, I don't effect the market - Tyson effects the market. When Tyson can effect the market, they don't need to be trading futures.
 

Sandhusker

Well-known member
Brad, "When Tyson can effect the market, they don't need to be trading futures"

Yep, and all of their moves need to be reported so everybody knows which way the elephant is moving.
 
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