RECENT NEWS
Wall Street Journal  Oct 1  Comment 
Drug companies are racing to create vaccines to stifle a deadly swine virus that has roiled the U.S. meat industry and pushed pork prices to record highs.
USDA NASS  Sep 25  Comment 
Red Meat Production Down 10 Percent From Last Year...
Benzinga  Sep 24  Comment 
Below are the meat products stocks on the NYSE and the NASDAQ in terms of revenue. The trailing-twelve-month revenue at Tyson Foods (NYSE: TSN) is $36.37 billion. Tyson's PEG ratio is 0.70. The trailing-twelve-month revenue at BRF SA (NYSE:...
Wall Street Journal  Aug 28  Comment 
Tyson Foods has completed its tender offer for Hillshire Brands, paving way for the completion of the meat industry's biggest-ever deal later Thursday, the companies said.
USDA NASS  Aug 21  Comment 
Red Meat Production Down 6 Percent From Last Year...
newratings.com  Aug 13  Comment 
WASHINGTON (dpa-AFX) - Meat products maker Hillshire Brands Co (HSH), Tuesday reported a decline in fourth-quarter profit, hurt by weak margins that offset growth in sales at its retail and food-service segments. Nonetheless, both earnings and...
Benzinga  Aug 8  Comment 
Below are the top meat products stocks on the NYSE and the NASDAQ in terms of gross margin. The trailing-twelve-month gross margin at BRF SA (NYSE: BRFS) is 25.80%. BRF's PEG ratio is 0.85. The trailing-twelve-month gross margin at Hormel...
Forbes  Jul 29  Comment 
Safety issues with the meat and meat products in China are causing controversy again.  Last year a group of diseased pig carcasses came floating into rivers near Shanghai, causing concern about black markets for meat spreading foodborne...
Forbes  Jul 28  Comment 
Sheldon Lavin, chairman of the Aurora, Illinois meat producer OSI Group, landed last night in Shanghai for a press conference this afternoon that was apparently intended to help rebuild trust in a key Asian market.  
newratings.com  Jul 28  Comment 
WASHINGTON (dpa-AFX) - Meat products maker Tyson Foods, Inc. (TSN) reported that its third-quarter net income attributable to the company rose to $260 million from $249 million in the year ago quarter. On a per share basis, net income was $0.73,...




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The U.S. government estimates that aggregate production of beef, pork, and poultry will increase to 93.3 billion pounds in 2008, up from 90.6 billion pounds in 2007.[1] 13% of this meat, or approximately 12 billion pounds, will be exported overseas.[2] Given a U.S. population of approximately 200 million people, U.S. meat companies produced enough for the average American to consume just over a pound of meat each day.

The major driving forces of meat production are global demand for food, and the prices of the feedstuffs used to raise animals. As emerging markets, such as China and India, become wealthier, their demand for meat increases - per capita meat consumption in these areas doubled in the past 20 years.[3] However, significant increases in the costs of soybeans and corn, the main components of livestock feed, have mitigated the effects of higher overall revenues and limited meat producers' profit margins. In particular, demand for corn spurred by ethanol production increased corn prices nearly 60% in 2007 and early 2008.[4] This in turn affected the costs of raising chickens and pigs, which rely on corn for over half their diets. Meat producers cannot pass the entire increase in feed prices through to consumers without losing business, and so they must accept a tighter profit margin.


Trends and Forces

Meat Production Companies are Moving Towards Vertical Integration to Decrease Costs and Maximize Economies of Scale

Most meat producers are consolidating meat production operations in order to decrease costs. By controlling every stage of meat production, from birth and growing to slaughter and processing, meat producers can reduce the overhead costs of running several different operations. As the meat production industry consolidates, companies realize greater economies of scale and the associated cost advantages.

Rising Feedstuff Prices Cut Meat Producers' Margins

Meat producers are heavily dependent on favorable pricing of feedstuffs, such as corn prices and soybeans, as food makes up the majority of the cost of raising livestock. Corn prices have risen sharply since the beginning of 2007, as ethanol producers have increased their demand for the commodity (rising oil prices, in turn, have increased demand for ethanol). Corn is also the main input for many other food products such as high fructose corn syrup that are in increasing worldwide demand - but nonetheless the USDA expects U.S. farmers to plant 8% less corn in 2008, lowering supply and increasing prices.[5] Many companies engage in hedging activities to "lock in" to current prices and protect themselves from price increases. They do this by buying forward grain contracts at current prices. This means the companies are protected in the case of raising prices, but are also liable in the case of falling prices because they will continue to pay the contracted rate. Any long-term, significant increase in feedstuffs prices has the potential to seriously depress margins and reduce profitability.

Meat Producers' Transition towards Prepared Meats Will Increase Margins

Meat Producers is looking to increase revenue from prepared meats. Prepared meats are further processed meat products, such as breaded chicken wings, pork tamales, or beef tacos. These products carry a higher margin than raw meat because they are sold one step closer to the consumer on the supply chain - and customers are willing to pay a premium for prepared foods that they won't pay for raw meat. More steps in the production of prepared foods reduces exposure to commodity prices as well - in the case of chicken, prepared meats decrease feed costs from 33-49% of total production cost to 17-24% of total cost.[6] Rising commodity prices factor into the price that consumers must pay for their meat, but these input costs cannot be passed on in their entirety. By eliminating an extra step in the sales process, meat production companies can pass a higher percentage of production costs onto the consumer as well.

Market Share

Chicken

Pilgrim's Pride is currently the world leader in chicken production and has approximately 25% of the market share in United States chicken, according to the company's estimates.[8] In 2006, the last year for which data was available, approximately 35 billion pounds of chicken was produced in the US.[9] Of this, 7.7 billion pounds were produced by Pilgrim's Pride.[10]

Tyson Foods Tyson Foods has the second largest share in the US chicken market. Unlike Pilgrim's Pride, Tyson Foods produces beef and pork in addition to chicken. Tyson Foods's chicken segment, which posted $8.1 billion in sales in 2007, is more heavily weighted towards value added branded products.[11]

Perdue Farms Perdue Farms is a privately held poultry company with an 8% share in the US poultry market. Perdue Farms sells branded retail poultry primarily to customers in the eastern and southeastern United States.[12] Perdue Farms largest customers are national restaurant chains, the U.S. military, and the national and regional distributors.

Sanderson Farms (SAFM) Sanderson Farms has a 5% share of the US chicken market. Sanderson Farms concentrates its sales predominantly in the southeastern, southwestern and western United States.[13]

Below is a graph detailing total US market share, by total pounds of chicken produced, among chicken producers. Pilgrim's Pride and Tyson Foods (TSN) dominate the market, with over 45% combined market share.


Beef

Tyson Foods (TSN) is the largest US producer of beef with 25% of the US market.[14]

Cargill Meat Solutions is the second largest US beef producer with 21% of the US market.[15]

Swift Foods, which is owned by Brazilian meat producer JBS S.A. (SAO:JBSS3), is the third largest US beef producer with 18.5% of the US market.[16]

National Beef is the fourth largest US beef producer with 10.5% of the US market.[17]

Cuts

Traditionally, filet mignon and chateubriand are center-cut fillet steaks that come from the short loin, which includes the tenderloin. The short loin lies between the rib and the pin bone portion of the sirloin. It sits in the middle of the back and just kind of lazily hangs out while the rest of the muscles on the cow or steer work a lot harder. There are other cuts that come from this area: porterhouse, t-bone, new york steak, filet mignon, etc.

Chateaubriand

Butchers have, historically, (and somewhat dishonestly) used the term "chateaubriand" to describe different parts of the short loin. In other words, it is a term often used to describe different cuts of meat from the same area of the animal. A chateaubriand can sometimes be a thick portion of boneless top sirloin, but it has also been used to describe a cut from the sirloin tip. Furthermore, if you look Chateaubriand up in Larousse Gastronomique, it states that Chateaubriand is simply a method of preparing a beef filet which calls for a thick slice from the beef tenderloin. Basically, Chateaubriand is a floating term. Unless you pin your processor down and ask them, it will be hard to tell exactly which cut the name truly refers to.

References

  1. US Economic Research Service Livestock Forecast
  2. US Economic Research Service Livestock Forecast
  3. [1]Rethinking the Meat Guzzler
  4. [2] National Corn Growers Association Futures Quotes
  5. [3]|"USDA Bets on Soy, but Farmers Like Corn"
  6. [4]|PPC 2007 10-K, Item 1, pg.5
  7. Pilgrim's Pride Corporate Fact Sheet
  8. PPC 2007 10-K, Item 1, pg.5
  9. [5]|U.S. Broiler Industry: Background Statistics and Information
  10. [6]|PPC 2007 10-K, Item 1, pg.4
  11. [7]Wikinvest, Tyson Foods
  12. [8]Perdue Farms: Our Products and Services
  13. [9]Sanderson Farms Reuters Online
  14. [10] Beef Losses Prompt Cutbacks
  15. [11] Beef Losses Prompt Cutbacks
  16. [12] Beef Losses Prompt Cutbacks
  17. [13] Beef Losses Prompt Cutbacks


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