Meat producers like Tyson Foods Inc. (TSN) will find feeding their stocks with corn to be dearer as corn, soybean and wheat prices surged following the U.S. government’s announcement that the farmers may not meet the expectation offered by it due to the damaging heat wave across the nation.
The U.S. Department of Agriculture yesterday lowered its corn-crop estimate by 4.1 %, and also reduced the soybean forecast by 5.2%, along with spring-wheat production, which will be down by 5.2 % from its earlier prediction in July.
Analysts fear that this may lead to grain-based inflation, as it is the primary input of many food sectors including meat and dairy. Corn, wheat and soybean- meal are the main ingredients in feeds of cattle, hogs and poultry.
Spring flooding, which resulted in late planting followed by a hot summer, proved very harmful for the grain crops. The USDA reduced its planted acreage estimate from its June 30 2011 planting report, cutting 500,000 acres from Montana and 450,000 from North Dakota.
The revision was made after farmers in four northern states were resurveyed in July, as many had not finished sowing when the government collected data for its earlier report.
Tyson Foods reported its third-quarter 2011 adjusted earnings of 56 cents a share, surpassing the Zacks Consensus Estimate of 40 cents. Profits were driven by higher sales as well as strong performance in all the segments, particularly Beef and Pork segments.
Tyson anticipates export sales to continue in fiscal 2012, resulting in slight decline in total domestic availability of protein. In the Chicken segment, the company forecasts a slight decline in the industry production, whereas it expects increased raw material costs in the Prepared Foods segment, which will however be offset by the operational improvements and increased pricing. Tyson also anticipates strong fundamentals in the Beef segment, and expects strong export sales to continue in the Pork segment.
We are encouraged by Tyson Foods’ significant presence in the international market. The company is vertically integrated and has advanced processing capabilities. However, the company faces stiff competition from both national and regional players like Smithfield Foods Inc. (SFD) and Pilgrim's Pride Corporation (PPC).
We currently have a Zacks #3 Rank on Tyson shares, which translates into a short-term Hold rating. On a long-term basis, we provide a Neutral recommendation on the stock.
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TYSON FOODS A (TSN): Free Stock Analysis Report
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