Beef Packers Struggle With Margins

With the number of cattle being slaughtered down, the profit challenges for beef packers increase, but it’s not impossible to get earnings reports into the black, at least sometimes.

Packing plants are the most profitable when running at full capacity, and many are designed to operate on thin margins even then.  Beef prices are up, but companies have had to resort to closing shifts and plants to make a profit, and despite such moves, plant margins have been in the red for most of the year.

Tyson foods, the US’ No. 1 beef packer, had earnings of $343 million in the third quarter ended June 27 on sales of $10,071 billion, according to the company’s latest earnings statement.  However, much of this was because the chicken segment of the company had an operating margin of 11.4%, and its prepared foods segment had an adjusted operating margin of 10.9%.

Tyson’s “beef segment suffered from export market disruptions that had an $84 million impact third quarter results, and we continue to see very high cattle costs at a time when product values and export issues are making it difficult to realize expected revenue levels in this spread business,” said President and Chief Operating Officer Donnie Smith, in Tyson’s earnings report.




Beef packers saw their margins reach an average of a plus $101 a head last week, up from $82 profits the previous week, according to the Sterling Profit Tracker, yet the beef cutout declined $2 per cwt to $145.29.

The pace of slaughter also is down from a year ago and the 2009-2013 average, as a graph from the Livestock Marketing Information Center shows.

In the latest week, slaughter totaled 545,000 head, down 51,300 head, or 8.6%, from the 2014 rate of 596,300.  The latest kill also is down 116,780 head, or 17.6%, from 661,780 for the previous five year average.

Adding to packer problems are slaughter steer prices, which are up sharply from the average.  USDA prices for slaughter steers in the Southern Plains last week averaged $145.94 per cwt, down $6.59 from a year ago but were up $37.76, or 34.9%, from the previous five-year average.




Some help for packers has come from the beef market where the USDA reported its boxed beef cutout value for choice 600- to 900-pound carcasses last week at $243.97, up $67.20, or 38.0%, from the 2009-2013 average of $176.77.

So product prices are up, but so are input costs of cattle while the availability of slaughter cattle is down.

Packers have compensated by closing shifts or plants.  Tyson ceased slaughter operations at its Dennison, Iowa, plant on Aug. 14, and analysts say others could follow.




Cash fed cattle markets remain mostly quiet.  Sales were reported in Iowa Wednesday at $140.50 to $142 per cwt on a live basis, $2 to $4 lower than last week.  Bid in the Plains were $142 to $144 with asking prices of $146 to $148.  Dressed bids were $222 to $225 with asking prices $228 to $230.

Last week, cattle traded lightly at mostly $143 to $144 live and $226 to $228 dressed.

The USDA reported lower boxed beef prices Wednesday with choice down $0.24 per cwt at $240.97 and select off $1.41 at $229.03 with 125 loads of fabricated product sold into the spot market.

The CME Feeder Cattle Index for the seven days ended Tuesday was $207.12, up $0.10.  This compares with the Sep settlement Wednesday of $200.75, up $0.47.