Should meat producers have a cow over falling beef profits?
- Tyson Foods, Cargill and other meat packers are seeing profit losses of $82.85 on each head of cattle they slaughter, according to Bloomberg. In the last month, industry analysts have lowered their consensus one-year target price for Tyson’s stock by 1.1%.
- Rising cattle costs and low beef prices are shrinking profit margins. Much of this downward trend is fueled by health-conscious consumers’ substitution of red meat for poultry. Per capita chicken consumption is set to reach 90.4 pounds this year, with per capita beef consumption estimated at only 56.6 pounds.
- Beef is Tyson’s largest meat category by revenue — bringing in $14.5 billion by end-of-year figures on Oct. 1 — but garners the smallest profits. The company saw its beef segment rebound in fiscal 2016 to a $347 million operating profit from a loss of $66 million the year before, but analysts are skeptical of this turnaround’s lasting power.
It’s no secret that a growing number of consumers are eating less meat, or giving it up entirely. The rise of flexitarian and vegan diets have spurred manufacturers to produce meat-free alternative products, making it easier for consumers to explore vegetarian options.
These falling price predictions are partially based on typical weather conditions, according the U.S. Department of Agriculture’s Economic Research Service. Weather-related setbacks or disease outbreaks could alter this outlook, but that won’t combat waning consumer interest in the beef category for long.
Red meat is often seen as a greater health risk than poultry, so poultry suppliers are better equipped to compete with alternative proteins — one of today’s fastest-growing consumer health trends and an increasingly powerful segment. And though Tyson is benefiting from recent increases in chicken consumption, consumer distrust of red meat could soon become a major blow to the company.
This could be why Tyson was the first major meat company to invest in a plant-based protein company. Tyson acquired a 5% stake in Beyond Meat in October, signaling its awareness of the growing power of meat alternatives.
Tyson has a track record of staying ahead of consumer trends and adapting its portfolio to meet consumer demands, but it will be interesting see how it, and other meat packers, react to a potentially tumultuous year for beef.
Follow Emma Liem on Twitter