The restructuring cuts roughly 20% of the company’s slaughter capacity and is expected to benefit margins at competitors, including Brazil’s MBRF and JBS, as well as US-based Cargill.
Tyson Foods, the largest animal protein company in the United States, announced a major restructuring of its beef business as the industry faces severe margin pressure from tight cattle supplies. The company will close its Illinois plant and a processing unit in Utah, while putting a third meatpacking plant in Pasco, Washington, up for sale.
Before the restructuring, Tyson had estimated slaughter capacity of around 21,000 head per day, assuming six operating days per week. The two plants the company will cease operating could process a combined 5,000 head per day.
In a statement, the company cited the severe shortage of cattle as the reason for the closures and said USDA data still show only limited evidence of heifer retention, a key indicator for herd rebuilding.
Despite the cuts, Tyson maintains that it will be able to sustain the same slaughter volume with its three remaining plants in Nebraska, Kansas and Texas, and is even considering adding a second shift at the latter depending on market conditions.
The announcement came shortly before executives from MBRF — the controlling shareholder of National Beef — presented the Brazilian company’s second-quarter results. Asked about the US cattle cycle, National Beef CEO Tim Klein cited Tyson’s restructuring and said the decision should have a “positive impact” on industry margins, as the same cattle supply will be distributed among fewer meatpackers.
The move also comes as competitors begin to see signs of a turning point in the US market. JBS USA CEO Wesley Batista Filho said this week that the reopening of the Mexican border to cattle imports resolves the most “acute” part of the industry’s supply problem — Mexican cattle have historically accounted for 4% to 5% of US slaughter — and noted that the US herd, currently at its lowest level in more than 70 years, has stopped declining, with early signs of heifer retention.
In a comparison among companies, the Brazilian groups have been performing better than Tyson in the US market. National Beef posted an EBITDA margin of 0.7% in the second quarter, virtually unchanged from 0.8% a year earlier, while JBS posted a negative 1% margin, although with a year-on-year improvement. Tyson, by contrast, saw its beef results worsen and cut the outlook for the division.
Source: The AgriBiz
