(Bloomberg) — It turns out a pandemic can do wonders for the economics of beef, and meat companies like Tyson Foods Inc (NYSE:). are reaping the benefits.
Currently, there’s plenty of cattle in the U.S. Last year Covid-19 caused meat plants to shut down, and farmers had nowhere to send animals. Ranchers simply left their herds to graze on pasture and multiply.
Now add high beef prices to that. Pandemic restrictions are easing, restaurants are reopening, and the meat is in high demand. So far Americans have been willing to pay up for more expensive steaks and burgers.
All of that is good news for America’s biggest meat company, who’s in a sweet spot between the cheap cattle and pricey beef. Tyson Foods Inc. on Monday reported record margins of 11% for the meat in its second quarter, up from 3.1% last year. The company’s shares have risen 23% this year, compared with 10% for the .
Beef could remain a moneymaker for some time. Plants are still operating under capacity because of labor shortages, so ample supplies of cattle will persist into 2022, the company said.
“Beef is so strong right now,” JPMorgan Chase & Co. (NYSE:) analysts Ken Goldman and Anoori Naughton said in a note. “The spread between beef and cattle remains extremely high.”
The favorable backdrop in cattle will help Tyson as it faces thinner returns in chicken and pork. Ranchers fared relatively well during the supply chain disruptions of the pandemic, but hog farmers were forced to cull thousands of animals, poultry producers destroyed eggs and dairy farmers dumped milk. That’s resulted in tighter pork and chicken supplies.
Meanwhile, cattle farmers are getting left out of the beef profits, and more headwinds are coming, namely high grain prices. Hog herds have been expanding in China as professional farms replace backyard operations. That’s boosting demand for feed grains because smallholders tended to feed pigs table scraps, while the farms use corn and soy meal. As China makes massive grain purchases off world markets, prices are soaring to eight-year highs.
“Looking ahead, we are increasingly concerned about the cattle industry reducing supply, particularly now that corn is approaching $8 a bushel and pasture conditions are the worst in years.,” Goldman and Naughton said. “For the time being, however, cattle remain plentiful, particularly with packers struggling to find labor to run at full capacity.”
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