BEEF bits

Feb 27, 2009
by WLJ

BEEF bits

Tyson seeking line of credit

Tyson Foods Inc., the world’s largest meat producer, said recently it will issue $500 million in notes and it plans to arrange a new $1 billion line of credit.

The company announced that the $500 million in unsecured senior notes would be due 2014. The company said it would use the proceeds to repay debt and end commitments for its accounts receivables.

Tyson also said the $1 billion line of credit would be secured by inventory, accounts receivable and cash, and would be guaranteed by Tyson’s domestic subsidiaries. In December, Tyson pledged virtually the entire company as collateral when it signed new terms with its creditors. The company said the $1 billion line of credit would replace that revolving credit facility. The notes’ sale and new credit agreement’s closing are targeted to occur in March.

New beef plant faces mechanic’s liens

Northern Beef Packers, which has struggled to finance a new plant in Aberdeen, SD, that is nearly a year behind schedule, is now facing about $7 million in mechanic’s liens. A seventh lien was filed recently in the Brown County Courthouse. County officials say all seven liens are still pending. The largest liens are: $2.1 million to a Huron company for dirt work; $1.75 million to an Omaha, NE, refrigeration company for materials, installation and labor; and just under $1 million to a Fargo, ND, firm for a pre-engineered steel structure and other work. The $40 million plant, which plans to process 1,500 head of livestock a day and employ about 650 people, was at one time scheduled to start up last August. The company Web site shows photos of a partially-completed plant.

Lean beef market defies odds

When farmers start selling off dairy cows, the price of lean beef usually goes down because of the extra product flooding the market. Not so in the current recession where there is the unusual situation in the lean beef market of prices going up at the same time that supplies—from the dairy cows sent to slaughter—are also higher. As U.S. consumers cut back on expenses, many have exchanged a steak on fine china for a hamburger on paper, creating extra demand for lean beef and trimmings from the slaughter process. USDA figures show wholesale prices for 90 percent lean beef are up about 14 percent from mid-December, yet dairy cow slaughter in the third week of January is up nearly 20 percent from a year earlier and the five-year average.

JBS prepared for economic downturn

JBS S.A. President Wesley Batista said the company was ready to ride out the global economic downturn, but would still keep an eye out for future investment opportunities. “We believe that 2009 is a year governed by caution,” Batista said in a statement accompanying the company’s fourth quarter financial results. Batista said JBS will be “conservative on investments” and focus on integrating current acquisitions, increasing productivity, and tightly managing working capital to decrease leverage. “Thus, we feel that we will be ready for market adjustments while being vigilant towards investment opportunities which could add value to our balance sheet,” he said.

Fitch downgrades Tyson’s rating

Fitch Ratings said it downgraded its issuer default rating and other debt ratings on Tyson Foods Inc. and its Tyson Fresh Meats subsidiary. Fitch cited net losses in the latest financial quarter and concern over losses from grain hedging. “The downgrade is due to net losses during the most recent quarter and Fitch’s expectation that a substantial portion of $168 million of grain-related hedging losses and $20 million of negative non-cash inventory adjustments will be realized in the near-term,” the rating agency said in a release.

The outlook is stable, reflecting expectations that Tyson’s credit statistics and cash flow will improve over the next year after modest further deterioration over the next couple of quarters, Fitch said.

Positive news for meat processors

On the heels of generally building stocks of frozen meat and poultry, USDA recently reported declines in chicken and ham stocks, which was seen by one Wall Street analyst as positive news for major meat and poultry processors. USDA reported stocks of chicken in cold storage on Jan. 31 were down 10 percent from a month ago and down 11 percent from a year ago. Stocks of pork bellies declined 4 percent from last year and ham stocks were down 8 percent, a welcomed relief from the 29 percent rise in ham stocks in December over the previous year. USDA noted, however, that it revised 2008 stocks data for boneless beef, total beef, pork hams, and total pork as a result of increased coverage of cold storage facilities as well as updated plant information.