Is Tyson Now the Lazarus of the Meat Industry?

Or is there a more logical explanation?


We’ll start up the “Doubting Thomas” Machine in a second, but let’s first acknowledge (and stick with the biblical analogy) that Tyson Foods Inc. seems to have rolled away the metaphorical stone at the mouth of the metaphorical tomb in which they seemed to be ensconced after last year's dismal earnings reports.


2009 was a historically tough year for a company that has been around for more than a hundred of them since their founding in 1896. The Arkansas-based food giant reported a $215 million loss in their operating income at the close of last year’s business with profit margins on their beef business alone running at a loss of 3.2%


But, as The Times reported last week, it looks like Tyson is bouncing back.


Big time.


This year’s final quarter earnings almost look like that of a different company altogether with a reported operating income of roughly $1.5 billion dollars, a $1.77 billion turnaround in one year.


That’s some year.


But, returning to our Lazarus metaphor, the miraculous mending of Tyson’s finances might be not so divine as it is an actuarial inevitability brought about by external market forces.


One salient piece of info from Tyson’s 2010 Q4 earnings report (we read them so you don’t have to) is the performance of the company’s beef business. As we said earlier, that same sector of their revenue stream accounted for a loss of nearly $346 million during Q4 2009. 


In Q4 2010 beef accounted for $542 million in profit for Tyson, a 4.6% gain in profits on their margins.


And if you follow us here at “The Biz,” you know that this is not too surprising (remember?) as beef prices are spiking like a 19^th century fever patient.


So is Tyson really a company that has been rewarded with a second lease on life for its good values and strong belief in the American dream?


Or is it a company that’s getting a profit vacation from an unnatural bubble in beef prices brought about by grain shortages in lands far, far away?


We hesitate to make a call either way as we’re merely humble editors of a blog and not analysts at a commodities brokerage, but we think that Tyson is worth a look for investors.


But make sure it’s a long, lingering one.

Enjoy that Delicious Steak While You Can... Still Afford it

Because as the price of corn surges higher and higher on the commodities markets, some publications have begun their watch of how it might affect cattle futures, and inevitably the cost of our steaks.

And corn isn’t just inching up slowly, today’s WSJ not only refers to a two year high of $5.79 a bushel (a figure that hit the limits allowed by The Chicago Board of Trade), it also shows that corn has shown 17% rise in price over the last 3 days.


The piece even goes so far as to quote an agricultural analyst who makes the claim that he “can smell $6 now.”

While the cause and effect between corn and cattle prices can be sometimes be viewed as not having immediate reciprocal impact, the signs in this case are already apparent.

A report on Bloomberg this Monday quoted a cattle futures analyst who reported data demonstrating that the U.S. annual per-capita beef supply for 2011 might plummet to a 35 year low of 46.8 pounds.

Any slump, or surge for that matter, in American beef production will have influence on retail prices, but a nosedive this dramatic will have more immediately negative impact on beef’s affordability for the average American consumer.

In fact, the very same report on Bloomberg foresees such a swift swelling in the cost of American beef that the rise in its value might outpace the rate of inflation on all U.S. food combined.

Unfortunately, this will be a bigger story in the months and years to come, as cattle aren’t commodities that can be discovered or harvested early. American cattle takes an average of three years to mature and even longer in the case of more “gourmet” strains of beef, like grass-fed for example.

And as corn is a major feeding crop for farm animals nationwide, we can expect to see the costs of other meats rise as well.

Bacon prices, for instance, are the highest they’ve been since the Carter Administration as the cost of feeding pigs, and thus maintaining equilibrium in the market for pork belly continues to be more and more expensive.

So it looks like “that place” you love with that “super cheap bacon cheeseburger” might be changing price points sooner than later…so can we here at “The Biz” interest you all in any genetically-altered Salmon while you wait? They’re corn free you know…

(editor's note) We here at “The Gastro Biz” are hot on the trails of some quotes from NYC restaurateurs to see what they’re seeing on the wholesale side of things and will update when we get one or two.