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 seems to be going wrong in the beef market.
“Our beef business suffered from export market disruptions that had an $US84 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 realise 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 like 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 7th 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.
And so given that beef is by far Tyson’s biggest revenue generator — for the first 9 months of 2015, Tyson’s beef segment accounted for $US12.8 billion in revenue; chicken, the next largest segment, brought in $US8.4 million in revenue — this is not good news.
Tyson shares, as a result, were down more than 7% in pre-market trade 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 breakeven in 2016, but this segment typically grows 2.5%-4.5% per year.