The world supply of meat is changing, thanks to the widespread outbreak of African swine fever in China.
In its second quarter profit statement, Tyson projects its U.S. pork, chicken and beef units will all benefit from increased demand due to ASF outbreaks. On Monday, the Arkansas-based company reported quarterly profits above analysts’ estimates.
ASF, which is fatal to pigs but harmless to humans has been detected in China, Vietnam, Cambodia, South Africa and parts of Europe. Read the comprehensive coverage of ASF from Farm Journal’s PORK here.
Tyson reports all nine of their core business segments reported a 5.3% increase in volume over the past 13 weeks, and all categories are showing year-over-year increases. Prepared Foods had a record quarter with $249 million in operating income and 12.3% return on sales.
All Eyes on Pork
With African swine fever in China, the world’s top hog producer, about 5% of the global protein supply has disappeared as demand is rising, said Noel White, Tyson CEO, during a press conference.
“We currently project the pork segment's operating margin for the fiscal year to exceed 6%. It is difficult to predict when ASF might positively impact our pork business,” he said. “However, we believe any financial benefit will likely occur in late 2019 or later, where we are well positioned to be agile and meet customer and consumer needs internationally and domestically.”
While there is opportunity to grow U.S.-produced meat and poultry sales, Tyson is not blind to the potential risks of ASF entering the U.S.
“The rate in which it has spread over the course of the last 12 months makes it very plausible that it could come to the U.S,” White said. If it did, that would kill hogs, close export markets, and raise input costs for pork used in prepared food products. Tyson tempered its forecast for prepared foods unit to a range of 10% to 12% return on sales, down from the 12% previously. They also plan to raise prices for prepared foods over the next six months to compensate for more expensive raw materials.
“We do not yet understand how pork and prepared food margins will be anything but impaired under the weight of higher hog costs,” J.P. Morgan analyst Ken Goldman said.
Alternative Meats are Here to Stay
“As we previously announced, we are launching our full-scale initiative to enter the alternative protein space. We'll be introducing products this summer and early in the next fiscal year, and we're well-positioned to capture growth in this space. We have a deep understanding of how to develop new products, brands, and categories, and our distribution reach will allow us to move quickly into the marketplace,” White said.
Beef Segment Shows Growth Even as Supplies Increase
A 4% margin during what is typically the company’s most volatile quarter underscores the beef market for Tyson.
“Average price was up 2.3% and volume increased 3.2% compared to the second quarter last year on improved cattle availability and strong demand,” White said.
Tyson reemphasized the decision to use DNA technology to trace beef back the individual animal of origin for Open Prairie Natural brand of Angus beef, citing consumer demand for accountability to marketing claims.
“Global demand for high quality beef continues to be strong, and we expect our international beef sales to grow in the second half of the fiscal year contributing to the Beef segment's margins of approximately 7% for the year,” he adds.