Cattle Market & Farm Reports, Editorials
Dec 31, 2008
by WLJ

In order to better match supply with shrinking demand, Tyson Foods Inc. is cutting both beef and chicken production, the latter of which marks a significant development in the poultry industry, according to Stephens Inc. analyst Farha Aslam. "While the beef cuts are positive, the chicken cuts are truly significant," Aslam wrote in a note to investors. "This is the first time in the 12-month industry downturn that there is any indication that Tyson is willing to rationalize production." Aslam notes Tyson has a 20-25 percent market share, meaning its cuts could have a significant impact on the overall poultry industry's supply and pricing. She estimates Tyson is cutting chicken production by 5 percent, as industry estimates indicate demand is down 4 percent to 6 percent. A 5 percent production cut by Tyson would amount to 1 percent to 2 percent fewer poultry pounds produced for the industry, augmenting industry production cuts that range from 6 percent to 8 percent, based on egg sets. "The industry has never cut production to this degree before, but demand for chicken has never contracted to this degree either," Aslam notes. The net effect, Aslam contends, is that shares of Tyson and Sanderson Farms will rise. Better discipline in the poultry market also is favorable for the profitability of the beef and pork markets, she said, boding well for companies such as Smithfield Foods and Hormel Foods.