CME: Tyson Cuts Officially Announced

US - CME's Daily Livestock Report for 15 July reports that Tyson Foods’ Pork Group made official on Wednesday that it would cut 20,000 of it 70,000 sows over the next 10 weeks.
calendar icon 16 July 2009
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The reduction had been rumored since early in the week and marks the second recent announced sow herd reduction by a major vertically integrated hog-pork company. Smithfield Foods announced in June that it would cut 27,000 sows, primarily from the Texas panhandle operations that it acquired as part of Premium Standard Farms. That cut comes on top of a 100,000 sow reduction last year.

The Tyson cuts will be in Arkansas and Missouri and will involve 76 jobs. According to the company’s statement, the reduction is being made because “the sale of feeder and weaned pigs has slowed because of unfavorable economic conditions such as high grain costs, lack of available capital and a reduction in pork demand.“ The market conditions in the feeder and weaned pig markets are borne out by Figures 1 and 2. Record-high corn prices were the primary driver of the decline in feeder and weaned pig prices last summer while higher corn prices and disappointing hog prices have pushed feeder/ weaner values lower this summer.

Sellers of weaned pigs (10-12 pound pigs that are about 21 days old) are probably the most vulnerable businesses in the pork industry at present. They generally do not have nurseries or grow-finish barns to handle these pigs and each week’s output MUST be moved as more sows are coming to take the place of the sows and litters in farrowing houses. Sellers of feeder pigs (40-50 pound pigs, 7-9 weeks of age) are in a bit better shape since those pigs can go into outdoor feeding if absolutely necessary. Regardless, both of these types of operations are the definition of price takers if they sell cash/spot pigs. Even those with sales contracts are finding these times very difficult since the buyers of those pigs are facing large losses if they have to pay normal contract prices of $30-plus for weaned pigs or about $50 for weaned pigs.

USDA’s monthly retail price data, released today, indicates lower beef prices, steady pork and chicken prices and record-high turkey prices. Historical data for all four appear in the chart at left. The all-fresh beef price (which includes Choice, Select and store-grade product) was $3.882/lb, 1 per cent lower than in May and 1 per cent lower than last June. The retail pork price, $2.954/lb., was equal to last month and 0.7 per cent higher than last year. The composite broiler price of $1.825/lb. was 1.7 per cent lower than last month but 3.5 per cent higher than last year. Finally, the record-high turkey price of $1.41/lb. was 3.2 per cent higher than last month and 13 per cent higher than last year. We believe these prices are reasonable representations of the retail markets but they almost certainly over-state those values since they do not weight lower prices such as features with the higher volumes that should move at those lower prices.

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