The United States is importing record amounts of beef this year and exporting less after ranchers slashed its cattle herd to its lowest level in decades. The trend reversal could squeeze margins for meat companies like Tyson Foods.
The decline in cattle numbers comes after years of drought fried pasture lands used for grazing, which drove farmers to reduce herd sizes. In addition, lofty feed prices — such as corn, which rose by nearly 40% this year to $6 a bushel — discouraged some ranchers from expanding their herds.
Ranchers focus on getting the cows they have to slaughter weight, or about 1,200 pounds, to be sold to meatpackers. It can take nine months to raise a cow to that point and another 20 to reach its final weight before being sent to a plant for processing.
With the number of cattle and calves shrinking, it will take longer for meatpackers to reach their sales targets and generate profit. That is expected to weigh on the industry’s and its customers’ earnings, including fast-food chains.
As the country’s largest beef producer, Tyson has been struck by a slump in exports. In November, the company’s international beef sales slipped by over a third from last year’s. That was partly due to a sharp drop in shipments to China, which has struggled with the outbreak of a deadly new strain of bird flu that has affected global poultry production.
But the loss of export business also has put pressure on domestic shipments. A stronger dollar — which has gained strength against the euro and other major currencies over the past few months — makes U.S.-made products more expensive for buyers outside the country, weighing on sales.
In addition, Tyson’s margins on the beef side of its business have been squeezed by rising input costs. According to a recent presentation by its chief financial officer, the company’s total costs and raw materials rose by about 11% in the second quarter this year from a year earlier.
Consumers have already felt the pinch of higher beef prices. The price of a pound of ground beef has risen by 7.5% this year compared to a year ago. Rising fuel and grain prices, up almost double the inflation rate, have also added to consumers’ bills at the grocery store. And while a grain price fall may help lower the cost of other food items, ranchers say it will take time before consumers see a reduction at the meat counter. That is because the cost of those grains is often passed on to consumers by meatpacking and retail giants. That is because there is a “distance between the price of those grains and those foods at the store,” according to a brief published by the American Farm Bureau Federation. The brief cites that four major meat conglomerates control 82% of the beef supply chain in the United States.
